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6. The long-run effects of monetary policy Aa Aa The following graphs show an economy that is cur...


6. The long-run effects of monetary policy 


The following graphs show an economy that is currently in long-run equilibrium. The first graph shows the aggregate demand (AD) and long-run aggregate supply (LRAS) curves. The second shows the long-run (LR) and short-run (SR) Phillips curves. The point on each graph shows the economy's current position. 

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According to the graphs, potential output in this economy is _______  and the natural rate of unemployment is _______ .


Suppose the central bank of the economy decreases the money supply. Show the long-run effects of this policy on both of the graphs by shifting the appropriate curves

 Tool tip: On each graph, click and drag one or both of the curves. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just try again and drag it a little farther.


The long-run effect of the central bank's policy is _______ in the inflation rate, _______ in the unemployment rate, and _______   in real GDP.

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