Suppose that initially Switzerland is in the long-run equilibrium. Suppose further that the Swiss central bank decreases the money supply. Use the IS-LM model together with the AD-AS model to illustrate graphically how the levels of income, interest rates, and prices change as the economy moves to the short-run equilibrium and then returns to the natural rate of output in the long run. 

Explain (graphically) what happens to output, interest rates and prices over time.

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In the scenario described where the Swiss central bank decreases the money supply we can analyze the effects on output interest rates and prices using ... View the full answer