Consider the IS-LM AD-AS model (with adaptive expectations). Assume that the economy is initially in a long-run equilibrium where output is at its natural level and prices are as expected by workers. (b) What is the impact of an increase in the money supply on the evolution over time of the interest rate, the output level and the price level. Carefully explain the economics behind these dynamics. In the long-run, does the in- crease in the money supply have any real (as opposed to nominal) effect on the economy?

Consider the IS-LM AD-AS model (with adaptive expectations). Assume that the economy is initially in a long-run equilibrium where output is at its natural level and prices are as expected by workers. (b) What is the impact of an increase in the money supply on the evolution over time of the interest rate, the output level and the price level. Carefully explain the economics behind these dynamics. In the long-run, does the in- crease in the money supply have any real (as opposed to nominal) effect on the economy?

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter20: Monetary Policy

Section20.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 3SQP

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