Consider the IS-LM model. Suppose the economy of Economica is initially at the general equilibrium. Suppose further that the central bank of Economica considers the increase of the nominal money supply as a policy tool and hires you as a consultant. Explain and show graphically how an increase in the nominal money supply would affect the labor, goods, or the asset market. Explain and show graphically how an increase in the nominal money supply would affect the short-run equilibrium. Explain and show graphically how an increase in the nominal money supply would affect the general (long-run) equilibrium. The use of monetary policy is highly debated among classical and Keynesian economists. Where do they agree and where do they disagree with respect to monetary policy?

Consider the IS-LM model. Suppose the economy of Economica is initially at the general equilibrium. Suppose further that the central bank of Economica considers the increase of the nominal money supply as a policy tool and hires you as a consultant. Explain and show graphically how an increase in the nominal money supply would affect the labor, goods, or the asset market. Explain and show graphically how an increase in the nominal money supply would affect the short-run equilibrium. Explain and show graphically how an increase in the nominal money supply would affect the general (long-run) equilibrium. The use of monetary policy is highly debated among classical and Keynesian economists. Where do they agree and where do they disagree with respect to monetary policy?

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter8: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 2WNG

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Use the IS-LM model to describe the short-run effects of an increase in the money supply on the equlibrium output and real interest rate. Assuming the economy is in a long-run equilibrium before the shock, also explain how the price level changes over time, and what happens to the economy in the long-run. Use the AS-AD framework for this part of the question. Add diagrams to illustrate the answer - you can use the attachment feature of the answer editor to upload your chart.
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