Use the complete IS-LM-FE and AD-AS model to analyze the effects of the following on the economy on short-run and long-run equilibrium levels of real interest rate, output, and price level.

Suppose banks install automatic teller machines on every block and, by making cash readily available, reduce the amount of money people want to hold.

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Yusra AneesLv10

22 Mar 2021

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Related questions

1. Suppose banks install automatic teller machines on every blockand, by making cash readily available, reduce the amount of moneypeople want to hold.

a. Assume the Fed does not change the money supply. According tothe theory of liquidity preference, what happens to the interestrate? What happens to aggregate demand?

b. If the Fed wants to stabilize aggregate demand, how should itrespond?

Describe the short-run and long-run effects on real output and the price level for each of the following events. Assume the economy begins at short-run and long-run equilibrium.

-Import prices suddenly rise.

-Government institutes a significant reduction in taxes on production.

-People hold off on spending because they expect prices to fall.

- Government increases spending

taupecrocodile866

Suppose that the Australian economy is at long run equilibrium, and the Australian government announces its decision to decrease spending on infrastructure.

Discuss the short-run effects of a decrease in spending on aggregate espenditure (AE) and aggregate demand (AD). in your discussion, explain the process that moves the economy to its new equilibrium output. That is, explain what would happen to:

1. aggregate planned expenditure

2. firms inventories and production

3. disposable income and consumption expenditure

4. aggregate demand and supply

5. real GDP and price level

Use the AE and AD Graph for your graphical analysis to support your explanation.