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Policy pro-cyclicalor countercyclical

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Below draw an AD/AS graph and a money market graph side-by-side.For the money market, use an upward sloping money supply curve andassume that the equilibrium interest rate in the money market is5%. Also, assume that actual GDP is at full employment and that theequilibrium price level in the AD/AS graph is 100. Now shift AD tothe right based on an increase in animal spirits. Show how themoney market graph will adjust to a new equilibrium. Then explainand show what happens if the Fed acts to keep the equilibrium quantity of money constant. Is this rule based policy pro-cyclicalor countercyclical? (Explain)

Reference no: EM131063352

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