Solutions for Chapter 9

Solutions for Chapter 9 - increase. This gradual increase...

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1. If the Fed increases the money supply, then the aggregate demand curve shifts outward, as in Figure 9–2. In the short run, prices are sticky, so the economy moves along the short-run aggregate supply curve from point A to point B. Output rises above its natural rate level Y, the economy is in a boom. The high demand, however, eventually causes wages and prices to
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Unformatted text preview: increase. This gradual increase in prices moves the economy along the new aggregate demand curve AD 2 to point C. At the new long-run equilibrium, output is at its natural-rate level, but prices are higher than they were in the initial equilibrium at point A. 2....
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Solutions for Chapter 9 - increase. This gradual increase...

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