In the graph, demonstrate the short-run effect of an increase in the growth rate of the money supply, assuming all else remains equal. What happens in the long run? LRAS O As expectations adjust to the increase, all curves shift back to their original locations. SRAS The SRAS curve shifts to the left, and the inflation rate increases, with no change in the growth rate. The AD curve shifts to the right, and both the real growth rate and inflation rate increase. The LRAS curve shifts to the right, and the real growth rate increases, with no change in the inflation rate. AD Real GDP growth rate Inflation rate (T)
In the graph, demonstrate the short-run effect of an increase in the growth rate of the money supply, assuming all else remains equal. What happens in the long run? LRAS O As expectations adjust to the increase, all curves shift back to their original locations. SRAS The SRAS curve shifts to the left, and the inflation rate increases, with no change in the growth rate. The AD curve shifts to the right, and both the real growth rate and inflation rate increase. The LRAS curve shifts to the right, and the real growth rate increases, with no change in the inflation rate. AD Real GDP growth rate Inflation rate (T)
Chapter27: Issues In Macroeconomic Theory And Policy
Section: Chapter Questions
Problem 6P
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