Yf Identify one action the central bank can take to help the economy recover from the recession. Draw a correctly labeled graph of the money market, and show the impact of the central bank’s action identified in part (b) on the nominal interest rate.
Assume a country’s economy is currently in recession.
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Draw a correctly labeled graph of the long-run
aggregate supply , short-run aggregate supply, and aggregatedemand curves , and show each of the following.-
Current real output, labeled Y1, and current price level, labeled PL1
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Full employment output, labeled Yf
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Identify one action the central bank can take to help the economy recover from the recession.
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Draw a correctly labeled graph of the
money market , and show the impact of the central bank’s action identified in part (b) on the nominal interest rate. -
On your graph for part (a), show the effect of the central bank’s action identified in part (b) on real output and the price level.
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Assume there is an increase in business confidence as a result of the central bank’s action.
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What will happen to the demand for capital goods?
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Draw a correctly labeled graph of the loanable funds market, and show the effect of the change identified in part (e)(i) on the real interest rate.
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Given your answer to part (e), what is the effect on potential real output in the long run? Explain.
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