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(b) An increase in the quantity of money by the Federal Reserve Bank (U. S. Central Bank), which, for a given price level, P, decreases the supply of bonds in the market, as the Fed buys bonds to put money into the economy, increasing the price of bonds and lowering the market interest rate. (Show shift of curve and color the line shifted.) (- Answer: LRAS P ADo AD, Y=real GDP (C) Nationwide lockdown of restaurants. (Show shift of curve and color the line shifted.) ( Answer: LRAS P ADo AD, Y=real GDP (d) A decrease in the aggregate price level. (- Answer: LRAS P ADo Y=real GDPKe) A series of investment banks, such as Lehman Brothers and Bear Sterns go bankrupt so that investment, firms' purchases of newly produced capital goods, part of AD = C+ I + G + (X - M) decreases. We have two effects here (a lower future capital stock and a decrease in investment). Show both (Show shift of curve and color the line shifted.) (- Answer. LRAS P AD AD, Y=real GDP1. Question #1 Score (= = + /3 (Chapter 11) In each of the following short-run cases, specify whether the events cause a shift of a curve or a movement along a curve. Determine which curve (s) and the direction(s) of the change. Do not be concerned about SRAS, only LRAS. (3 points; 0.6 points per question (a) A depreciation of the dollar; i.e., it takes fewer euros to purchase 1 dollar, which means it takes more dollars to purchase 1 euro. Note: we have two effects here: -American producers now pay more in dollar terms for foreign inputs, such as steel, a major commodity used in production, which affects long-run aggregate supply. Which way? Show in the graph below. (Show shift of curve and color the line shifted.) (- Answer: LRAS P ADo AD, Y=real GDP -U.S. exports in general become more competitive; imports, less competitive, which, of course, affects aggregate demand. Which way? Show in the graph below. In terms of our class discussion, the ratio of foreign prices to U.S. prices is now [Picclan / E) / Pus, where E = the units of foreign currency per dollar exchange rate (e.g. 16/$1); and Proreign is the price level expressed in foreign currency, e.g. euros. So, here, the ratio increases because E decreases.) (Show shift of curve and color the line shifted.) (- Answer: LRAS P ADo AD, Y=real