The economy is in a recession with high unemployment and low output. a)Draw a graph of aggregate demand and aggregate supply to illustrate the current situation. Be sure to include the aggregate-demand curve ,the short-run aggregate-supply curve ,and the long-run aggregate-supply curve. b) Identify an open-market operation that would restore the economy to its nature rate. c)Draw a graph of the money market to illustrate the effect of this open-market operation.Show the resulting change in the interest rate. d) Draw a graph similar to the one in part a to show the effect of the open-market operation on output and the price level.Explain in words why the policy has the effect that you have shown in the graph.

The economy is in a recession with high unemployment and low output. a)Draw a graph of aggregate demand and aggregate supply to illustrate the current situation. Be sure to include the aggregate-demand curve ,the short-run aggregate-supply curve ,and the long-run aggregate-supply curve. b) Identify an open-market operation that would restore the economy to its nature rate. c)Draw a graph of the money market to illustrate the effect of this open-market operation.Show the resulting change in the interest rate. d) Draw a graph similar to the one in part a to show the effect of the open-market operation on output and the price level.Explain in words why the policy has the effect that you have shown in the graph.

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 5PA

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The economy is in a recession with high unemployment and low output.

a)Draw a graph of aggregate demand and aggregate supply to illustrate the current situation. Be sure to include the aggregate-demand curve ,the short-run aggregate-supply curve ,and the long-run aggregate-supply curve.

b) Identify an open-market operation that would restore the economy to its nature rate.

c)Draw a graph of the money market to illustrate the effect of this open-market operation.Show the resulting change in the interest rate.

d) Draw a graph similar to the one in part a to show the effect of the open-market operation on output and the price level.Explain in words why the policy has the effect that you have shown in the graph.

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