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Question 1: AD-SRAS-LRAS Model [10 Points) Using aggregate demand (AD), short-run aggregate supply (SRAS) and long-run...

Question:

Question 1: AD-SRAS-LRAS Model [10 Points) Using aggregate demand (AD), short-run aggregate supply (SRAS) and long-run aggreg
Question 1: AD-SRAS-LRAS Model [10 Points) Using aggregate demand (AD), short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) curves, graphically illustrate the effect of an increase in the money supply on output and prices in the short and long run. Assume that the economy is initially in long run equilibrium at the potential output level and prices are fixed in the short-run. In your graph, label "A" for the initial equilibrium, "B' for the short-run equilibrium, and "C" for the long-run equilibrium.

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Ans → Aggregate price level LRAS SRAS •SRAS, wo ad A AD2 AD, Y Y output/ Real GDP potential Output The figure at figure showsincrease in the short run. The price level rises from P, to P, and output rises from Y, to Y. That is both the aggregate pric

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