1)

2. Equilibrium and disequilibrium in the money market The following diagram represents the money market in the United States, which is currently in equilibrium. 6.0 Money supply O 5.5 Money demand 5.0 4.5 Money supply 4.0 INTEREST RATE (Percent) 3.5 3.0 Money demand 2.5 2.0 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 QUANTITY OF MONEY (Trillions of dollars)4. The long-run effect of Federal Reserve action (or inaction) in the AD-AS model The following graph shows the shortrun aggregate supply (SEAS) and aggregate demand (AD) curves for a ctional economy that is producing at point A (grey star symbol), which corresponds to the intersection of the AD] and SRASI curves. 6') 1011 IA 90 No Intervention IO 80 70 Intervention 60 PRICE LEVEL 50 40 30 20 + l l l l l I 2 3 4 5 6 TI" 8 9 1|] QUANTITY OF OUTPUT (T nllions of dollars)