Problem Solving 1. Suppose the Central Bank reduces the money supply by 5 percent. Assume the velocity of money is constant. a. What happens to the aggregate demand curve? b. What happens to the level of output and the price level in the short run and in the long run? Give a precise numerical answer. What happens to the real interest rate in the short run and in the long run? Here, your answer should just give the direction of the changes.

Problem Solving 1. Suppose the Central Bank reduces the money supply by 5 percent. Assume the velocity of money is constant. a. What happens to the aggregate demand curve? b. What happens to the level of output and the price level in the short run and in the long run? Give a precise numerical answer. What happens to the real interest rate in the short run and in the long run? Here, your answer should just give the direction of the changes.

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5CQQ

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