Problem Solving 1. Suppose the Central Bank reduces the money supply by 5 percent. Assume the velocity of money is constant. a. What happens to the aggregate demand curve? b. What happens to the level of output and the price level in the short run and in the long run? Give a precise numerical answer. What happens to the real interest rate in the short run and in the long run? Here, your answer should just give the direction of the changes.

Problem Solving 1. Suppose the Central Bank reduces the money supply by 5 percent. Assume the velocity of money is constant. a. What happens to the aggregate demand curve? b. What happens to the level of output and the price level in the short run and in the long run? Give a precise numerical answer. What happens to the real interest rate in the short run and in the long run? Here, your answer should just give the direction of the changes.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 3SCQ: The short run aggregate supply curve was constructed assuming that as the price of outputs...

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