please answer ALL parts of this question (part a and part b) if you show full work and include graphs and are neat i will be sure to leave a thumbs up. please answer as soon as possible. thank you so much! 7.Suppose the Fed reduces the money supply by 5%. For simplicity, assume in SR that prices are verysticky (so draw AS with f=0) and in the LR prices are fully flexible so f=1.a. What happens to the aggregate demand curve? Draw this below.b. What happens to the level of output and the price level in the short run and long run? Can youcalculate these percent changes in P and Y in the SR and LR (think about the quantity theory ofmoney here and Okun's Law!)?

Introduction As cash supply diminishes, less cash will be accessible in the economy and less cash…

Uppose the Fed reduces the money supply by 5%. For simplicity, assume in cky (so draw AS with f-0) and in the LR prices are fully flexible so f=1. What happens to the aggregate demand curve? Draw this below.

Uppose the Fed reduces the money supply by 5%. For simplicity, assume in cky (so draw AS with f-0) and in the LR prices are fully flexible so f=1. What happens to the aggregate demand curve? Draw this below.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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please answer ALL parts of this question (part a and part b) if you show full work and include graphs and are neat i will be sure to leave a thumbs up. please answer as soon as possible. thank you so much!

7.Suppose the Fed reduces the money supply by 5%. For simplicity, assume in SR that prices are very
sticky (so draw AS with f=0) and in the LR prices are fully flexible so f=1.
a. What happens to the aggregate demand curve? Draw this below.
b. What happens to the level of output and the price level in the short run and long run? Can you
calculate these percent changes in P and Y in the SR and LR (think about the quantity theory of
money here and Okun's Law!)?

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