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Homework answers / question archive / Consider an economy at its long-run equilibrium when there is a decrease in the money supply
Consider an economy at its long-run equilibrium when there is a decrease in the money supply. Although you're not submitting graphs, it might be helpful to draw them. Use a Keynesian analysis. This decrease in the money supply causes the [Select and the Select) If there is no additional government intervention, in the long run, prices adjust, causing the (Select and Select curves to shift until the economy returns to full-employment output In the long-run equilibrium, the price level [Select] and the interest rate (Select]
Question 4 6 pts Consider an economy at its long-run equilibrium when there is a decrease in the money supply. Although you're not submitting graphs, it might be helpful to draw them. Use a Keynesian analysis. This decrease in the money supply causes the VI Select , and the Select LM curve to shift left 15 curve to shift left. LM curve to shift right iment intervention, in the long run, prices adjust, causing IS curve to shift right and Select) curves to shirt until the economy returns to full-employment output. In the long-run equilibrium, the price level Select and the Interest rate Select
D Question 4 6 pts Consider an economy at its long-run equilibrium when there is a decrease in the money supply. Although you're not submitting graphs, it might be helpful to draw them. Use a Keynesian analysis. This decrease in the money supply causes the Select and the Select) LRAS curve to shift right If there is no additional government inte AD curve to shift left: AD curve to shift right adjust, causing SRAS curve to shift up the Select and LRAS curve to shift left: curves to shift until the economy returns to full-emplos.......... SRAS curve to shift down In the long run equilibrium, the price level Select and the Interest rate Select
D Question 4 6 pts Consider an economy at its long-run equilibrium when there is a decrease in the money supply. Although you're not submitting graphs, it might be helpful to draw them. Use a Keynesian analysis. This decrease in the money supply causes the Select) and the Select If there is no additional government intervention, in the long run, prices adjust, causing thSeleci and Select) IS curves to shift un M FE mployment output In the long-run equilibrium, the price level 1 Select and the interest rate Select]
D Question 4 6 pts Consider an economy at its long-run equilibrium when there is a decrease in the money supply. Although you're not submitting graphs, it might be helpful to draw them Use a Keynesian analysis. This decrease in the money supply causes the Select , and the Select If there is no additional government intervention, in the long run, prices adjust, causing the Select an ? Select) curves to shift LRAS until the economy returns to full-emplSRAS AD In the long run equilibrium, the price level (Select and the Interest rate 1 Select
D Question 4 6 pts Consider an economy at its long-run equilibrium when there is a decrease in the money supply. Although you're not submitting graphs, it might be helpful to draw them. Use a Keynesian analysis. This decrease in the money supply causes the Select) and the Select) If there is no additional government intervention, in the long run, prices adjust, causing the Select and Select curves to shirt until the economy returns to full-employment output In the long-run equilibrium, the price leve (Select and the returns to the original Interest rate Select is lower than the original is higher than the original
Question 4 6 pts Consider an economy at its long-run equilibrium when there is a decrease in the money supply. Although you're not submitting graphs, it might be helpful to draw them. Use a Keynesian analysis. This decrease in the money supply causes the Select) , and the [Select) If there is no additional government intervention, in the long run, prices adjust, causing the [Select) and Select curves to shift until the economy returns to full-employment output. In the long-run equilibrium, the price level (Select and the interest rat [Select is lower than the original returns to the original is higher than the original
(a)
Decrease in money supply causes LM curve to shift left, and AD curve to shift left (since lower money supply increases interest rate, higher interest rate decreases investment and decreases aggregate demand, shifting AD curve to left).
(b)
If there is no government intervention, in long run, prices adjust, causing IS and SRAS curves to shift (rightward) until economy reaches long run equilibrium.
(c)
As a result, in long run, price level is lower than the original price level and interest rate is higher than the original.
[Graphs:
(1) IS LM
In following IS-LM graph, IS0 and LM0 are initial IS and LM curves intersecting at point A with initial interest rate r0 and output (real GDP) Y0. When money supply falls, shifts left to LM1, intersecting IS0 at point B with higher interest rate r1 and lower GDP Y1 in short run. In long run, IS0 shifts right to IS1, intersecting LM1 at point C with further higher interest rate r2 and original output Y0.
(2) AD AS
In all of the following AD-AS graphs, initial equilibrium is at point A where AD0 (aggregate demand), LRAS0 (long run aggregate supply) and SRAS0 (short-run aggregate supply) curves intersect with initial equilibrium price level (inflation) P0 and initial equilibrium real GDP (= potential GDP) Y0.
When money supply decreases, AD0 shifts leftward to AD1, intersecting SRAS0 at point B with lower price level P1 and lower real GDP Y1 in short run. In long run, SRAS0 shifts right to SRAS1, intersecting AD1 at further lower price level P2 and initial GDP Y0.
