Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. Suppose the economy reaches long-run equilibrium without the Fed responding. Now suppose the financial crisis ends and the ability of banks to lend returns to normal. In which case is the price level lower compared to its value prior to the crisis? A. both after the economy reaches long-run equilibrium during the crisis and in the long-run equilibrium after the crisis is over B. after the economy reaches long-run equilibrium during the crisis but not in the long-run equilibrium after the crisis is over

Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. Suppose the economy reaches long-run equilibrium without the Fed responding. Now suppose the financial crisis ends and the ability of banks to lend returns to normal. In which case is the price level lower compared to its value prior to the crisis? A. both after the economy reaches long-run equilibrium during the crisis and in the long-run equilibrium after the crisis is over B. after the economy reaches long-run equilibrium during the crisis but not in the long-run equilibrium after the crisis is over

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 8PA

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