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Dynamic as-ad diagram

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Suppose that an economy has a natural growth rate of 2%. Moreover, the central bank in the country has perfect control over the money supply and increases it by 4% every year. Assume spending is such that the velocity of money is constant over time and that the economy is currently at its long-run equilibrium.

a. Draw a clearly labeled dynamic AS-AD diagram that shows the long-run equilibrium point, as well as the economy's current growth rate of real GDP, inflation, and expected inflation. Label this point E0. Be sure to include both the short-run and long-run aggregate supply curves.

Reference no: EM131095253

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