Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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T8 Q5 Please provide responses to the numbers found in the question:
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Transcribed Image Text:6. Problems and Applications Q5
The following graph shows the long-run aggregate-supply curve (LRAS), the short-run aggregate-supply curve (AS), and the aggregate-demand curve
for an economy.
Price Level
The economy is in 2
LRAS
Interest Rate
with
Quantity of Output
Aggregate Supply
Money Supply
1
Aggregate Demand
To return the economy to the natural rate of output, the Fed could
¹5
6
unemployment and
O
Money Demand
Aggregate Demand
Aggregate Supply
On the following graph, illustrate the effect of the open market operation the Fed will need to perform to return the economy to its natural rate of
output. Show the resulting change the interest rate.
output.
▼ government bonds.
Money Demand
(?)
Money Supply
?
Quantity of Money
On the original graph, show the effect of the open market operation on output and the price level.
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