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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

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 natural 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.

Subpart (a):

To determine

Aggregate demand and supply model when the economy is in recession.

Explanation

Figure 1 illustrates the equilibrium position.

Figure 1 illustrates the aggregate demand and supply model when the economy is in recession...

Subpart (b):

To determine

Aggregate demand and supply model when the economy is in recession.

Subpart (c):

To determine

Aggregate demand and supply model when the economy is in recession.

Subpart (d):

To determine

Aggregate demand and supply model when the economy is in recession.

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