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Unformatted text preview: Using the graphical analysis in this chapter, explain how such a shock would affect output and the price level. Explain the role inflationary expectations play in this adjustment. 6. Analyse the effects of an increase in the money supply within the Keynesian model where both the price level and money wage are assumed to be variable. Include in your answer the effects on the level of real income, the price level, the interest rate, and the money wage. 7. Suppose that the interest elasticity of money demand is zero within the Keynesian model with a fixed money wage but a variable price level. Analyse the effects of an autonomous increase in investment demand. Include in your answer the effects on the level of real output, the price level, and the rate of interest....
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- Spring '08