Suppose the economy is initially at point 1 on the following graph and that the Fed increases the money supply. Suppose also that individuals hold rational expectations, prices and wages are flexible, and individuals overestimate the increase in aggregate demand (blas upward). On the following graph, use the black point (cross symbol) to show the short-run equilibrium. Then use the grey point (star symbol) to show the long- run equilibrium. PRICE LEVEL 112 106 100 In the short run, the price level GDP is LRAS Natural Real GDR GRAS GRAS AD AD , and Real GDP is Short Run Equlonum ☀ Long Run Equbrum Natural Real GDR. In the long run, the price level is and Real

Suppose the economy is initially at point 1 on the following graph and that the Fed increases the money supply. Suppose also that individuals hold rational expectations, prices and wages are flexible, and individuals overestimate the increase in aggregate demand (blas upward). On the following graph, use the black point (cross symbol) to show the short-run equilibrium. Then use the grey point (star symbol) to show the long- run equilibrium. PRICE LEVEL 112 106 100 In the short run, the price level GDP is LRAS Natural Real GDR GRAS GRAS AD AD , and Real GDP is Short Run Equlonum ☀ Long Run Equbrum Natural Real GDR. In the long run, the price level is and Real

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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