Suppose the economy is originally at an equilibrium output at the potential output level. Now suppose the central bank increases money supply by 15%, while the potential output increases by 4% over the period the long run can be achieved. Using the AD-AS framework and quantity theory of money, explain how the real output level and the price level will change in the short run and in the long run.

Suppose the economy is originally at an equilibrium output at the potential output level. Now suppose the central bank increases money supply by 15%, while the potential output increases by 4% over the period the long run can be achieved. Using the AD-AS framework and quantity theory of money, explain how the real output level and the price level will change in the short run and in the long run.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter27: Issues In Macroeconomic Theory And Policy

Section: Chapter Questions

Problem 5P

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