Question
Consider the Keynesian model with nominal wage rigidity for a closed economy. The economy is originally in a general equilibrium. Let's consider a monetary expansion
Consider the Keynesian model with nominal wage rigidity for a closed economy. The economy is originally in a general equilibrium. Let's consider a monetary expansion by its central bank. Let's say the policy action is unanticipated.Please use the AD-AS diagram together with the IS-LM-FE diagram to illustrate the policy action's effects in the short run and in the long run. You must also explain the economic forces behind the movements of the curves/lines in your graph.[Please clearly label your graph, and explicitly indicate the positions of the short-run and long-run equilibrium points.]
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