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Refer to Figure 15.3 If this economy is initially in a recession, the change in price level which would bring the economy back to full employment would also change the money demand and interest rates. The change in interest rates will change investment spending, which is reflected by the movement fromA) e to f.B) I1 to I0.C) r1 to r0.D) P1 to P0.Points Earned:0.5/0.5Correct Answer(s):A33.Refer to Figure 15.4. Suppose that the economy is originally in equilibrium at point a. In the short run, as the supply of money increases, the economy moves to point34.Refer to Figure 15.4. Suppose that the economy is originally in equilibrium at point a. In the long run, as the supply of money decreases, the economy moves to point35.Suppose that GDP is ________ potential output. We would expect prices to rise, money demand to rise, interest rates to rise, and total demand to ________.36.The Federal Reserve can use monetary policy toA) change output in the long run, but not the short run.B) change output in the short run, but not the long run.C) change output in both the short run and the long run.D) Monetary policy has no effect on output.Points Earned:0.0/0.5Correct Answer(s):B
37.In the long run, increases in the money supply have no effect on the level of output because prices and wages will38.Crowding out refers to39.A necessary condition for the classical model to work is that