7. The long-run effects of monetary policy

The following graphs show the state of an economy that is currently in long-run equilibrium. The first graph shows the aggregate demand (AD) and long-run aggregate supply (LRAS) curves. The second shows the long-run and short-run Phillips curves (LRPC and SRPC).

LRAS O AD LRAS PRICE LEVEL AD 0 3 12 15 18 OUTPUT (Trillions of dollars)LRPC O SRPC LRPC INFLATION RATE SRPC 2 4 8 10 12 UNEMPLOYMENT RATE (Percent)