Question: d) (20 POINTS) Given the results from the aforementioned paper by Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867-1960, the


d) (20 POINTS) Given the results from the aforementioned paper by Milton Friedman and Anna Schwartz, "A Monetary History of the United States, 1867-1960," the economics profession had to acknowledge the fact that money leads output and that in the short run at least, money and real output are positively correlated. In the space below, draw a money market diagram on the left and a IS/LM diagram on the right (label completely) and discuss how the real business cycle economists (RBC) addressed this empirical reality (explain using your diagrams) . Be specific and explain exactly why the Fed behaves the way they do (hint, storm windows). In your discussion, please state how RBC economists explain the business cycle (recurrent fluctuations in output) as well as their thoughts on whether or not policymakers should conduct active countercyclical policy
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