Part 2: Short Answers, Graphing (20 points) 1. The Fed decreases the money supply. (8 points) (a) Explain the long-run e

[answerhappygod]

Part 2 Short Answers Graphing 20 Points 1 The Fed Decreases The Money Supply 8 Points A Explain The Long Run E 1 (25.95 KiB) Viewed 28 times

Part 2: Short Answers, Graphing (20 points) 1. The Fed decreases the money supply. (8 points) (a) Explain the long-run effects of this policy. Use a diagram of the market for money to support your explanation (6) Explain the long-run effects of this policy using the quantity equation. (c) An economist says the decrease in money supply made by the Fed was a good decision because it set the inflation rate equal to the negative of the real interest rate. Explain the logic behind this argument. (a) is the previous economist necessarily right, or are there any costs associated to decreasing the quantity of money?