Show the effects of a permanent increase in the money supply
What will be an ideal response?
(1 ) AA-shifts right-increase in Y and E both higher than if money supply change was temporary rising price level makes AD decrease, DD shifts left
(2 ) rising prices also reduce real money supply, so AA shifts left (although not all the way back to original position)
(3 ) AA and DD reach short run equilibrium at an E that is higher than initially, but lower than the short run effects of the shift.
(4 ) Output returns to initial level because higher prices reversed the effect of the initial depreciation on Aggregate Demand.
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According to the table, the price of Big Macs converted to U.S. dollars varies widely around the world. This shows that Big Mac pricing does NOT follow the theory of
A) Ricardian equivalence. B) purchasing power parity. C) supply and demand. D) real versus nominal prices.
Why is the price at which the quantity demanded equals the quantity supplied the equilibrium price?
What will be an ideal response?