PRINC OF ECONOMICS PKG >CUSTOM<
7th Edition
ISBN: 9781305018549
Author: Mankiw
Publisher: CENGAGE C
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Question
Chapter 34, Problem 2PA
(a):
To determine
Liquidity preference theory to explain the impact of the policy.
(b):
To determine
Impact of change in interest rate on output and
(c):
To determine
Change in price due to change the short run equilibrium to long run equilibrium.
(d):
To determine
Impact of change in the price level on demand for money and interest rate.
(e):
To determine
Real effect of money
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Question 7. Using the models learned in class, graphically illustrate and explain the impact of the
following policy and explain your answer.
Suppose the Bank of Canada reduces the money supply by 5%.
a. What happens to the aggregate demand curves?
b. What happens to the level of output and the price level in the short run and in the long
run?
c. What happens to the real interested rate in the short run and in the long run?
Suppose an economy is in long-run equilibrium.a.Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium(call it point A).be sure to include both short-run and long-run aggregate supply.b.The central bank raise the money supply by 5 percent.Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium.(call it point B)c.Now slow the new long-run equilibrium(call it point C).what causes the economy to move from point B to point C?d.According to the sticky-wage theory of aggregate supply,how do nominal wages at point A compare to nominal wages at point B?How do nominal wages at point A compare to nominal wages at point C?e.According to the sticky wage theory of aggregate supply,how do real wages at point A compare to the real wages at point B?How do real wages at pointA compare to the real wages at point C?f.Judging by the impact of the money supply on nominal and real…
a) Explain what happens to Money Demand when each of the following occurs:
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Chapter 34 Solutions
PRINC OF ECONOMICS PKG >CUSTOM<
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