Take a look at Figure 11-4. If the Federal Reserve increases the quantity of money in circulation sufficiently to generate a rightward shift in the aggregate demand curve by trillion, will actual equilibrium real GDP rise by this amount in the classical model? Explain.
The actual equilibrium real GDP will not rise by this amount in the classical mode
Whenever the Federal Reserve increments cash supply, the dispensable salaries of individuals increment. This expanded buying power increments AD. Thus, the AD bend movements to one side by trillion.
The economy is at point A where AD surpasses the likely GDP. As per the old-style model, point An is impractical over the long haul since an economy can't deliver more than gathering the expanded AD potential. In this manner, cost level ascents. It will keep on doing as such work the expansion clears out the abundance of buying power in the possession of individuals.
Suppose that there is a temporary, but significant, increase in oil prices in an economy with an upward-sloping curve. If policymakers wish to prevent the equilibrium price level from changing in response to the oil price increase, should they increase or decrease the quantity of money in circulation? Why?
Suppose that the Keynesian short-run aggregate supply curve is applicable for a nation's economy. Use appropriate diagrams to assist in answering the following questions:
What are two events that can cause the nation's real to increase in the short run?
What are two events that can cause the nation's real to increase in the long run?
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