Suppose the economy is in long-

run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases the money supply by 6%.

a. Illustrate the short-

run effects on the macroeconomy by using the aggregate demand–

aggregate supply model. Be sure to indicate the direction of change in real GDP, the price level, and the unemployment rate.

b. Illustrate the long-

run effects on the macroeconomy by using the aggregate demand–

aggregate supply model. Again, be sure to indicate the direction of change in real GDP, the price level, and the unemployment rate.

c. Now assume that this monetary contraction was completely expected. Illustrate both short-

run and long-

run effects on the macroeconomy by using the aggregate demand–

aggregate supply model. Be sure to indicate the direction of change in real GDP, the price level, and the unemployment rate.