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 monetary policy has a policy to hold interest rates constant. What action would they take in that situation? Do you think this would be a good policy in this situation? Briefly explain.
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