Suppose the economy is in long-run equilibrium. (Note: This is from Chapter 20, which we will cover on April 26) a. Use the model of aggregate demand and aggregate supply to illustrate the initial long-run equilibrium (label that point A). Be sure to include both short- run and long-run aggregate supply. b. Suppose the central bank raises the money supply by 5%. Illustrate in your graph what happens to output and the price level as the economy moves from the initial equilibrium to the new short-run equilibrium (label that point B). c. Now show the new long-run equilibrium (label that point C). What causes the economy to move from point B to point C?
Suppose the economy is in long-run equilibrium. (Note: This is from Chapter 20, which we will cover on April 26) a. Use the model of aggregate demand and aggregate supply to illustrate the initial long-run equilibrium (label that point A). Be sure to include both short- run and long-run aggregate supply. b. Suppose the central bank raises the money supply by 5%. Illustrate in your graph what happens to output and the price level as the economy moves from the initial equilibrium to the new short-run equilibrium (label that point B). c. Now show the new long-run equilibrium (label that point C). What causes the economy to move from point B to point C?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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