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![6) Suppose an economy is in its long-run equilibrium and the real money demand function for the economy is (MiP)-0.2Y. Now suppose suddenly money demand becomes (MiP)-0.4Y Draw a graph and show the initial long-run equilibrium and then show the short-run equilibrium that would results from this change in money demand [Hint: You are drawing the graph from Chapter 10 but think about how this money demand change affects velocity from Chapter 5.] a) b) Assuming policymakers take no action, how would the economy transition back to the long-run equilibrium? Show this on your graph from part a). c Briefly explain, could monetary policy change the money supply to offset this change in money demand? If so, how would they do that?](http://img.homeworklib.com/questions/c069e970-c078-11ea-b4df-b76ec896123a.png?x-oss-process=image/resize,w_560)
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6) Suppose an economy is in its long-run equilibrium and the...
6) Suppose an economy is in its long-run equilibrium and the real money demand function for...
6) Suppose an economy is in its long-run equilibrium and the real money demand function for the economy is (M/P) d =0.2Y. Now suppose suddenly money demand becomes (M/P) d =0.4Y. a) Draw a graph and show the initial long-run equilibrium and then show the short-run equilibrium that would results from this change in money demand [Hint: You are drawing the graph from Chapter 10 but think about how this money demand change affects velocity from Chapter 5.] b) Assuming...
Suppose a closed economy is initially in the long run equilibrium. Suppose the monetary base of...
Suppose a closed economy is initially in the long run equilibrium. Suppose the monetary base of this economy is $100 million, of which people carry $10 million in form of currency/cash. 3. Assuming the banks keep a reserve ratio of 5%, what is the money supply in this economy? Suppose from now on that because of a virus, people become afraid of using currency and decide to deposit all the currency in banks, and carry money exclusively in the form...
I Suppose a closed economy is initially in the long run equilibrium. Suppose the monetary base...
I Suppose a closed economy is initially in the long run equilibrium. Suppose the monetary base of this economy is $100 million, of which people carry $10 million in form of currency/cash. 3. Assuming the banks keep a reserve ratio of 5%, what is the money supply in this economy? Suppose from now on that because of a virus, people become afraid of using currency and decide to deposit all the currency in banks, and carry money exclusively in the...
Suppose the economy is in a long-run equilibrium, as shown on the following graph. Now suppose...
Suppose the economy is in a long-run equilibrium, as shown on the following graph. Now suppose a wave of business pessimism reduces aggregate demand. On the following graph, shirt a curve or adjust the point to reflect the short-run effect of business pessimism. LRPC Inflation Rate SRPC Unemployment Rate If the Fed undertakes expansionary monetary policy, it return the economy to its original inflation rate and original unemployment rate. Now, suppose the economy is back in long-run equilibrium, and then...
Suppose that the economy is at long-run equilibrium. a. Draw a diagram to illustrate the state of the economy. Be su...
Suppose that the economy is at long-run equilibrium. a. Draw a diagram to illustrate the state of the economy. Be sure to show aggregate demand, short-run aggregate supply, and long-run aggregate supply. b. Now suppose that a severe decline in the value of homes has affected the entire economy. Use your diagram to show what happens to output, employment, and the price level in the short run. Explain how households and businesses will adjust to this unanticipated shock to the...
Suppose a closed economy is initially in the long run equilibrium. Suppose the monetary base of...
Suppose a closed economy is initially in the long run equilibrium. Suppose the monetary base of this economy is $100 million, of which people carry $10 million in form of currency/cash. 3. Assuming the banks keep a reserve ratio of 5%, what is the money supply in this economy? Suppose from now on that because of a virus, people become afraid of using currency and decide to deposit all the currency in banks, and carry money exclusively in the form...
The following graphs show the state of an economy that is currently in long-run equilibrium.
3. The long-run effects of monetary policy The following graphs show the state of 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 and short-run Phillips curves (LRPC and SRPC).Which of the following statements are true based on these graphs? Check all that apply The natural level of output is $3 trillion. The unemployment rate is currently 6% higher than the natural rate of unemployment. The...
2. Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases money supply by 6%. a) Illust...
2. Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases money supply by 6%. a) Illustrate the short-run effects of the monetary policy by using aggregate demand-aggregate supply model. Be sure to indicate the direction of change in real GDP, the price level and the unemployment rate. b) Illustrate the long-run effects of the monetary policy by using aggregate demand-aggregate supply model....
4) Suppose in the economy in the next couple years, bitcoin and other alternatives to money...
4) Suppose in the economy in the next couple years, bitcoin and other alternatives to money become even more popular. As a result, money demand (demand for $) goes down. a) Draw IS/LM and AD/AS diagrams, label the initial long-run equilibrium. Now show the effect of the decrease in money demand on both diagrams and label the short-run equilibrium. b) If policymakers do nothing, what will happen in the long-run after this decrease in money demand? c) Suppose instead that...
4. Problems and Applications Q4Suppose the economy is in a long-run equilibrium, as shown on...
4. Problems and Applications Q4Suppose the economy is in a long-run equilibrium, as shown on
the following graph. Now suppose a fall in government purchases
reduces aggregate demand.On the following graph, shift a curve or adjust the point to
reflect the short-run effect of reduction in government
purchases.True or False: If the Fed undertakes
expansionary monetary policy, it can return the economy to its
original inflation rate and original unemployment rate.
________ Now, suppose the economy is back in long-run equilibrium, and...
I Suppose a closed economy is initially in the long run equilibrium. Suppose the monetary base of this economy is $100 million, of which people carry $10 million in form of currency/cash. 3. Assuming the banks keep a reserve ratio of 5%, what is the money supply in this economy? Suppose from now on that because of a virus, people become afraid of using currency and decide to deposit all the currency in banks, and carry money exclusively in the...
Suppose the economy is in a long-run equilibrium, as shown on the following graph. Now suppose a wave of business pessimism reduces aggregate demand. On the following graph, shirt a curve or adjust the point to reflect the short-run effect of business pessimism. LRPC Inflation Rate SRPC Unemployment Rate If the Fed undertakes expansionary monetary policy, it return the economy to its original inflation rate and original unemployment rate. Now, suppose the economy is back in long-run equilibrium, and then...
Suppose that the economy is at long-run equilibrium. a. Draw a diagram to illustrate the state of the economy. Be sure to show aggregate demand, short-run aggregate supply, and long-run aggregate supply. b. Now suppose that a severe decline in the value of homes has affected the entire economy. Use your diagram to show what happens to output, employment, and the price level in the short run. Explain how households and businesses will adjust to this unanticipated shock to the...
2. Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases money supply by 6%. a) Illustrate the short-run effects of the monetary policy by using aggregate demand-aggregate supply model. Be sure to indicate the direction of change in real GDP, the price level and the unemployment rate. b) Illustrate the long-run effects of the monetary policy by using aggregate demand-aggregate supply model....
4. Problems and Applications Q4Suppose the economy is in a long-run equilibrium, as shown on
the following graph. Now suppose a fall in government purchases
reduces aggregate demand.On the following graph, shift a curve or adjust the point to
reflect the short-run effect of reduction in government
purchases.True or False: If the Fed undertakes
expansionary monetary policy, it can return the economy to its
original inflation rate and original unemployment rate.
________ Now, suppose the economy is back in long-run equilibrium, and...
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