Consider the figure to the right. If the Bank of Canada decreases the quantity of money in circulation sufficiently to generate a leftward shift in the aggregate demand curve by $0.5 trillion, will actual equilibrium real GDP rise by this amount in the classical model? Explain. 1.) Using the line drawing tool, draw a new AD curve that shows the effects of decreasing the quantity of money in circulation by $0.5 trillion. Label your line 'AD₂ 2.) Using the point drawing tool, indicate the economy's new long-run equilibrium price and level of real GDP. Label this point 'E₂.' Carefully follow the instructions above, and only draw the required objects. In the classical model, actual equilibrium real GDP from E₁ to E₂. In other words, with fall by this amount because prices and the economy moves. OA. Say's law and flexible interest rates, prices and wages would always lead to full employment at a level of real GDP of $4 trillion. OB. Say's law and inflexible interest rates, prices and wages would always lead to less than full employment at a level of real GDP of under $4 trillion. OC. inflexible interest rates, prices and wages would always lead to full employment at a level of real GDP of $4 trillion. O D. Say's law and inflexible interest rates, prices and wages would always lead to greater than full employment at a level of real GDP of over $4 trillion. Price Level P₁ LRAS₁ E₁₁ 4.0 4.5 Real GDP per Year ($ trillions) AD₁
Consider the figure to the right. If the Bank of Canada decreases the quantity of money in circulation sufficiently to generate a leftward shift in the aggregate demand curve by $0.5 trillion, will actual equilibrium real GDP rise by this amount in the classical model? Explain. 1.) Using the line drawing tool, draw a new AD curve that shows the effects of decreasing the quantity of money in circulation by $0.5 trillion. Label your line 'AD₂ 2.) Using the point drawing tool, indicate the economy's new long-run equilibrium price and level of real GDP. Label this point 'E₂.' Carefully follow the instructions above, and only draw the required objects. In the classical model, actual equilibrium real GDP from E₁ to E₂. In other words, with fall by this amount because prices and the economy moves. OA. Say's law and flexible interest rates, prices and wages would always lead to full employment at a level of real GDP of $4 trillion. OB. Say's law and inflexible interest rates, prices and wages would always lead to less than full employment at a level of real GDP of under $4 trillion. OC. inflexible interest rates, prices and wages would always lead to full employment at a level of real GDP of $4 trillion. O D. Say's law and inflexible interest rates, prices and wages would always lead to greater than full employment at a level of real GDP of over $4 trillion. Price Level P₁ LRAS₁ E₁₁ 4.0 4.5 Real GDP per Year ($ trillions) AD₁
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider the figure to the right. If the Bank of Canada decreases the quantity of money in circulation sufficiently to generate a leftward shift
in the aggregate demand curve by $0.5 trillion, will actual equilibrium real GDP rise by this amount in the classical model? Explain.
1.) Using the line drawing tool, draw a new AD curve that shows the effects of decreasing the quantity of money in circulation by $0.5 trillion.
Label your line 'AD ₂.'
2.) Using the point drawing tool, indicate the economy's new long-run equilibrium price and level of real GDP. Label this point 'E₂.'
Carefully follow the instructions above, and only draw the required objects.
In the classical model, actual equilibrium real GDP
from E₁ to E₂.
In other words, with
fall by this amount because prices
and the economy moves
O A. Say's law and flexible interest rates, prices and wages would always lead to full employment at a level of real GDP of $4 trillion.
OB. Say's law and inflexible interest rates, prices and wages would always lead to less than full employment at a level of real GDP of
under $4 trillion.
O C. inflexible interest rates, prices and wages would always lead to full employment at a level of real GDP of $4 trillion.
O D. Say's law and inflexible interest rates, prices and wages would always lead to greater than full employment at a level of real GDP
of over $4 trillion.
Price Level
LRAS₁
E₁
4.0
4.5
Real GDP per Year ($ trillions)
AD₁
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