Chapter 32, Problem 1FRQ

a)

To determine

The short run and long run effect of money supply on the aggregate output.

Explanation of Solution

Short-term growth in total production would be followed by a long-term decline to potential production.

b)

To determine

The short run and long run effect of money supply on the aggregate price level.

Explanation of Solution

In the near term, the total price level will rise by less than 25%, and in the long run, it would rise by 25%.

c)

To determine

The short run and long run effect of money supply on the aggregate price level.

Explanation of Solution

In the short term, money's true worth rises, but it stays the same over time.

d)

To determine

The short run and long run effect of money supply on the interest rate.

Explanation of Solution

Long-term increases bring the interest rate back to its initial level after a short-term decline.