Q2. Imagine that an economy begins in general equilibrium. It is shocked by an increase in the real money supply. a) Use

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Q2. Imagine that an economy begins in general equilibrium. It is shocked by an increase in the real money supply. a) Use

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Q2 Imagine That An Economy Begins In General Equilibrium It Is Shocked By An Increase In The Real Money Supply A Use 1
Q2 Imagine That An Economy Begins In General Equilibrium It Is Shocked By An Increase In The Real Money Supply A Use 1 (28.27 KiB) Viewed 74 times
Q2. Imagine that an economy begins in general equilibrium. It is shocked by an increase in the real money supply. a) Use an IS-LM model to describe the changes in the economy from this shock. Assume the price level is fixed in this model. Show the initial and final position in the money market from this shock. b) Describe how a central bank could implement expansionary monetary policy (increasing the real money supply and reducing the interest rate). c) Use a suitable diagram to describe the long-run relationship between the quantity of money, the price level and the value of money. (30%)
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