AD-AS Model LRAS SRAS Long-run equilibrium Price Level, P Short-run equilibrium AD Income, Output, Y
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Initial Short-Run Adjustment: When the Fed increases the money supply, it lowers interest rates, which encourages borrowing and spending. This increases aggregate demand. So, in the short run, the Aggregate Demand (AD) curve shifts to the right from AD to AD1. Show more…
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Suppose the economy is initially at a long-run equilibrium. The Fed then increases the money supply. In the following three diagrams, assume the resulting inflation is unexpected. b. Shift the appropriate curve or curves to show the initial short-run adjustment. Then shift the appropriate curve or curves to show the long-run adjustment. Finally, place the points for short-run equilibrium and long-run equilibrium in their appropriate places.
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