Suppose an economy is in long run equilibrium

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Suppose an economy is in long run equilibrium.

a. Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both short-run and long-run aggregate supply

b. The Central Bank raises the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from initial to the new short run equilibrium (call it point B)

Reference no: EM13837911

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