Short-answer questions Note: You should show your step-by-step answers to the questions below. If only final answers were provided, no marks will be counted for the question.

Question 6. (18 points) Suppose that an economy is initially in long-run equilibrium. Assume that the aggregate demand curve is Y= 3(M/P) and M = 2,000. The long-run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = 2.0. a. If M decreases to 1,000, what are the short-run values of P and Y? (4 points) b. Once the economy adjusts to long-run equilibrium at M = 1,000, what are P and l"? (4 points) c. Use a chart with curves of aggregate demand and aggregate supply (both short run and long-run aggregate supply curves) to show the impact of the increase of M on P and Y. (10 points)