Answered: Model the short- and long-term effects…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Through bond purchases, a nation's central bank injects money into the economy. One of the short-term effects is to drive the price level from 100 up to 104.2. Other short-term effects occur as well, but these fade in the long run, even as the price level climbs still higher.

Model the short- and long-term effects in the graph below by dragging one or more curves to new positions.

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"!
Price level (P)
100
LRAS
8
10
Q
SRAS
AD
Real GDP (Y)

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