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- Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. O The size of the labor force O The level of technological knowledge The price level The inflation rate Suppose the economy produces real GDP of $40 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve on the graph. 132 128 LRAS 124 120 116 Q112 + PRICE LEVEL6) The short-run aggregate supply curve (AS) is upward sloping because: A) an increase in output causes an increase in employment, a reduction in unemployment, an increase in the nominal wage and an increase in the price level. B) a reduction in the aggregate price level causes a reduction in nominal money demand and a reduction in the interest rate. C) a reduction in the aggregate price level (P) will cause a reduction in the interest rate and an increase in output. D) an increase in the aggregate price level will cause an increase in the interest rate and a reduction in output. E) an increase in the nominal wage causes a reduction in the amount of output that firms are willing to produce.What is the expected impact of a decline in the money supply to the US economy? A. Higher aggregate prices (inflation) B. Lower aggregate prices (deflation) C. There is no general relationship between the money supply and inflaton
- a) Is the long-run aggregate supply upward sloping or vertical? Why or Why not? b) Are there many short-run aggregate supply curves and long-run aggregate supply curves? Why or Why not? c) When does the short-run aggregate supply curve shift upwards and why? d) What are the conditions required for an increase in the growth rate of the money supply without resulting in a change in employment, Aggregate Quantity Supplied, and Aggregate Quantity Demanded?What is the effect of a rise in the U.S. price level on the buying power of money? The buying power of money _______. A. increases and aggregate demand increases B. increases and the quantity of real GDP demanded increases C. decreases and the quantity of real GDP demanded decreases D. decreases and aggregate demand decreasesThe interest rate effect states that as the aggregate price level decreases, all else equal, people demand drives the interest rate and investment O more; up; down less; down; up more; down; down less; up; down money, which
- Explain how an increase in a price level will affect the demand for money and the aggregate demand. Use relevant graphs to support your answer.The hypothetical economy represented by the graph is currently experiencing a recession. Suppose the central bank attem to increase the growth rate of the money supply to return the economy to its long-run equilibrium. It is able to move the economy to a new equilibrium but falls short of its goal. Move the aggregate demand curve to demonstrate this scenario. Long-run aggregale supply Short-run aggregate supply Aggregate demand Real GDP growth rate Inflauen rateIn the long run, the effect of an increase in money supply can be summarized as follows: Select one: a. Price level and nominal wage will increase in the same proportion as the increase in money supply. Consequently, the real wage falls, and level of employment increases. The LRAS shifts to the right. b. Price level and nominal wage will increase in the same proportion as the increase in money supply. Consequently, the real wage, and level of employment stays the same. The LRAS shifts right and back to the left again. c. Price level and nominal wage will increase in the same proportion as the increase in money supply. Consequently, the real wage rises, and level of employment decreases. The LRAS shifts to the left d. Price level and nominal wage will increase in the same proportion as the increase in money supply. Consequently, the real wage, and level of employment stays the same. The LRAS does not shift at all.
- The United States is at full employment when the Fed cuts the quantity of money, other things remaining the same. Which explains correctly the sequence of effects and the effect of the cut in money supply on aggregate demand? 1. We start with the money market equilibrium. The money supply curve shifts to the right and the rate of interest rises. This will decrease real investment that we can see from the Investment demand function. The AE curve will move down as investment (Ibar) declines. This will shift the AD to the left. 2. We start with the money market equilibrium. The money supply curve shifts to the left and the rate of interest rises. This will increase real investment that we can see from the Investment demand function. The AE curve will move down as investment (Ibar) declines. This will shift the AD to the left. 3. We start with the money market equilibrium. The money supply curve shifts to the left and the rate of interest rises. This will decrease real…Q: Suppose that when everyone wakes up tomorrow, they discover that the government has given them an additional amount of money equal to the amount they already had. Explain what effect this doubling of the money supply will likely have on the following:a. The total amount spent on goods and servicesb. The quantity of goods and services purchased if prices are stickyc. The prices of goods and services if prices can adjustIn the medium run, if government purchases are increased and nominal money supply is decreased, we can expect that a. the interest rate will increase while aggregate demand and prices may increase, decrease, or remain the same b. aggregate demand and prices will increase but interest rates will not change c. aggregate demand and interest rates will decrease but prices will increase d. aggregate demand, prices, and the interest rate will all decrease e. the AD-curve will shift to the right and the AS-curve will shift to the left
