Consider a hypothetical economy that produces at its long-run macroeconomic equilibrium at a price level of 100. Suppose the real GDP of this economy grows at an annual rate of 5%. Assume that the central bank would like to keep the inflation rate at 2% per year. If the velocity of money remains constant, the central bank can achieve its goal by pursing an annual money growth rate of Suppose the central bank enacts an unanticipated expansionary monetary policy. As a result, the supply of loanable funds leading to in short-term interest rates. The following graph shows the goods and services market of this economy at full employment. Assume that potential output remains constant. Adjust the graph to show the long-run effect of an unanticipated expansionary monetary policy on the goods and services market by dragging the aggregate demand (AD) curve, the short-run aggregate supply (AS) curve, or both.

Consider a hypothetical economy that produces at its long-run macroeconomic equilibrium at a price level of 100. Suppose the real GDP of this economy grows at an annual rate of 5%. Assume that the central bank would like to keep the inflation rate at 2% per year. If the velocity of money remains constant, the central bank can achieve its goal by pursing an annual money growth rate of Suppose the central bank enacts an unanticipated expansionary monetary policy. As a result, the supply of loanable funds leading to in short-term interest rates. The following graph shows the goods and services market of this economy at full employment. Assume that potential output remains constant. Adjust the graph to show the long-run effect of an unanticipated expansionary monetary policy on the goods and services market by dragging the aggregate demand (AD) curve, the short-run aggregate supply (AS) curve, or both.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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