ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Economics

 

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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
LRAS
REAL GOP
In the short run, the price level is
GDP is
Natural Real GDP
SRAS, GRAS
AD
SRAS,
AD
3
AD
and Real GDP is
+
Short Run Equilibrium
-*
Long-Run Equilibrium
Natu Real GDR. In the long run, the price level is
and Real
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Transcribed Image Text: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 LRAS REAL GOP In the short run, the price level is GDP is Natural Real GDP SRAS, GRAS AD SRAS, AD 3 AD and Real GDP is + Short Run Equilibrium -* Long-Run Equilibrium Natu Real GDR. In the long run, the price level is and Real
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