Just this page. Thank you 8 Macroeconomics LESSON 6 ACTIVITY 42 (contmued)(F) In the short run, what happens to the price level? Explain how the Fed's action results in achange to the price level.Figure 42.3Expansionary Monetary PolicyLRASSRASADY* Y,REAL GDP3. Suppose that in the situation shown in Figure 42.3, the aggregate supply and demand curves arerepresented by LRAS, SRAS and AD. The monetary authorities decide to maintain the level ofemployment represented by the output level Y, by using expansionary monetary policy.(A) Explain the effect of the expansionary monetary policy on the price level and output in theshort run.(B) Explain the effect on the price level and output in the long run.Advanced Placement Economics Macroeconomics: Student Activities O National Council on Economic Education,-------ctriPRICE LEVEL UNIT4 MacroeconomiCS LESSON 6 ACTIVITY 42 (continued)(C) Explain what you think will happen to the nominal rate of interest and the real rate of interestin the short run as the Fed continues to increase the money supply. Explain why.(D) Explain what you think will happen to the nominal rate of interest and the real rate of interestin the long run. Explain why.4. Many economists think that moving from short-run equilibrium to long-run equilibrium maytake several years. List three reasons why the economy might not immediately move to long-runequilibrium.5. In a short paragraph, summarize the long-run impact of an expansionary monetary policy on theeconomy.222Advanced Placamant BanRt

The forces of aggregate demand and aggregate supply determine the macroeconomic equilibrium of an…

Macroeconomics LESSON 6 ACTIVITY 42 (coninued) (F) In the short run, what happens to the price level? Explain how the Fed's action results in a change to the price level. Figure 42.3 Expansionary Monetary Policy LRAS SRAS AD Y* Y, REAL GDP 3. Suppose that in the situation shown in Figure 42.3, the aggregate supply and demand curves are represented by LRAS, SRAS and AD. The monetary authorities decide to maintain the level of employment represented by the output level Y, by using expansionary monetary policy. (A) Explain the effect of the expansionary monetary policy on the price level and output in the short run. (B) Explain the effect on the price level and output in the long run. PRICE LEVEL

Macroeconomics LESSON 6 ACTIVITY 42 (coninued) (F) In the short run, what happens to the price level? Explain how the Fed's action results in a change to the price level. Figure 42.3 Expansionary Monetary Policy LRAS SRAS AD Y* Y, REAL GDP 3. Suppose that in the situation shown in Figure 42.3, the aggregate supply and demand curves are represented by LRAS, SRAS and AD. The monetary authorities decide to maintain the level of employment represented by the output level Y, by using expansionary monetary policy. (A) Explain the effect of the expansionary monetary policy on the price level and output in the short run. (B) Explain the effect on the price level and output in the long run. PRICE LEVEL

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Chapter1: Making Economics Decisions

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Just this page. Thank you 8

Macroeconomics LESSON 6 ACTIVITY 42 (contmued)
(F) In the short run, what happens to the price level? Explain how the Fed's action results in a
change to the price level.
Figure 42.3
Expansionary Monetary Policy
LRAS
SRAS
AD
Y* Y,
REAL GDP
3. Suppose that in the situation shown in Figure 42.3, the aggregate supply and demand curves are
represented by LRAS, SRAS and AD. The monetary authorities decide to maintain the level of
employment represented by the output level Y, by using expansionary monetary policy.
(A) Explain the effect of the expansionary monetary policy on the price level and output in the
short run.
(B) Explain the effect on the price level and output in the long run.
Advanced Placement Economics Macroeconomics: Student Activities O National Council on Economic Education,
-------
ctri
PRICE LEVEL

UNIT
4 MacroeconomiCS LESSON 6 ACTIVITY 42 (continued)
(C) Explain what you think will happen to the nominal rate of interest and the real rate of interest
in the short run as the Fed continues to increase the money supply. Explain why.
(D) Explain what you think will happen to the nominal rate of interest and the real rate of interest
in the long run. Explain why.
4. Many economists think that moving from short-run equilibrium to long-run equilibrium may
take several years. List three reasons why the economy might not immediately move to long-run
equilibrium.
5. In a short paragraph, summarize the long-run impact of an expansionary monetary policy on the
economy.
222
Advanced Placamant BanRt

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