Answer to Question #333662 in Macroeconomics for shay

Question

The economy of Beta is in a recession.

(a) Draw a single correctly labeled graph with both the short-run and long-run Phillips curves. Label the initial short-run equilibrium as point X.

(b) Identify a combination of fiscal and monetary policy actions that can be used to restore full employment.

(c) Draw a correctly labeled graph of the money market and show the effect of the monetary policy action identified in part (b) on the equilibrium nominal interest rate.

(d) Based on the change in the equilibrium nominal interest rate identified in part (c), what will happen to aggregate demand in the short run? Explain.

(e) On your graph in part (a), label a point Z that shows the effect of the change in aggregate demand identified in part (d).

(f) Now assume the economy is in long-run equilibrium. If the central bank pursues a policy of increasing the money supply at an annual rate of 5 percent, what will happen to inflation and real output in the long run? Explain using the quantity theory of money.

Answer 1

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