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Unformatted text preview: e) There is a boom in the economy. The IA line will shift up real GDP=potential 2. Suppose the economy is initially at potential GDP. a. Draw an aggregate-demand curve and inflation-adjustment line, and label the initial equilibrium with an A . b. Suppose there is a change in monetary policy that aims to increase the rate of inflation (from the current rate). Illustrate the short-run effect on your diagram. Label the new equilibrium with a B . c. Illustrate the medium-run effect of the change on your diagram, and label the medium-run equilibrium with a C . d. Illustrate the long-run effect of the change on your diagram, and label the long-run equilibrium with a D. e. Is the rate of inflation at point D higher or lower than at point A?...
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This note was uploaded on 02/13/2012 for the course ECON 2 taught by Professor Staff during the Fall '10 term at Santa Clara.
- Fall '10