2. Assume an economy is in long-run equilibrium. a. Draw a correctly labeled graph of aggregate...
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2. Assume an economy is in long-run equilibrium. a. Draw a correctly labeled graph of aggregate demand and supply of this economy. b. Draw a correctly labeled graph of equilibrium in the money market. c. On your graph in part (b), show what happens to the money market in the short run if the central bank increases the money supply. d. On your graph in part (a), show what happens to the macroeconomy in the short run if the central bank increases the money supply. e. On both graphs, show what will happen in the long run. Explain these adjustments. 1. Assume an economy is in long-run equilibrium. a. Draw a correctly labeled graph of aggregate demand and supply of this economy. b. Draw a correctly labeled graph of equilibrium in the money market. c. On your graph in part (b), show what happens to the money market in the short run if the central bank decreases the money supply. d. On your graph in part (a), show what happens to the macroeconomy in the short run if the central bank decreases the money supply. e. On both graphs, show what will happen in the long run. Explain these adjustments. 2. Assume an economy is in long-run equilibrium. a. Draw a correctly labeled graph of aggregate demand and supply of this economy. b. Draw a correctly labeled graph of equilibrium in the money market. c. On your graph in part (b), show what happens to the money market in the short run if the central bank increases the money supply. d. On your graph in part (a), show what happens to the macroeconomy in the short run if the central bank increases the money supply. e. On both graphs, show what will happen in the long run. Explain these adjustments. 1. Assume an economy is in long-run equilibrium. a. Draw a correctly labeled graph of aggregate demand and supply of this economy. b. Draw a correctly labeled graph of equilibrium in the money market. c. On your graph in part (b), show what happens to the money market in the short run if the central bank decreases the money supply. d. On your graph in part (a), show what happens to the macroeconomy in the short run if the central bank decreases the money supply. e. On both graphs, show what will happen in the long run. Explain these adjustments.
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