Starting at E₁ suppose the Fed uses expansionary monetary policy then LRAS Aggregate price level, P P₁ P₂ P₁ ..... E₁ E₂ AD₁ Yo Y₁ SRAS₂ AD₂ SRAS₁ Real GDP O AD₁ will shift to AD2 and the economy will move from E₁ to E2. O SRAS₁ will shift to SRAS2 and the economy will move from E₂ to E3. SRAS₂ will shift to SRAS₁ and the economy will move from E3 to E2. AD₂ will shift to AD₁ and the economy will move from E₂ to E₁.

Starting at E₁ suppose the Fed uses expansionary monetary policy then LRAS Aggregate price level, P P₁ P₂ P₁ ..... E₁ E₂ AD₁ Yo Y₁ SRAS₂ AD₂ SRAS₁ Real GDP O AD₁ will shift to AD2 and the economy will move from E₁ to E2. O SRAS₁ will shift to SRAS2 and the economy will move from E₂ to E3. SRAS₂ will shift to SRAS₁ and the economy will move from E3 to E2. AD₂ will shift to AD₁ and the economy will move from E₂ to E₁.

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5CQQ

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