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Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent. Use your diagram to show what happens to
Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. LRAS O Aggregate Supply Aggregate Demand Aggregate Supply Price Level Aggregate Demand Quantity of OutputNow adjust the graph to Show the new longerun equilibrium. What causes the economy to move from its shortrun equilibrium to its longrun equilibrium? 0 The government increases taxes to curb aggregate demand. 0 Nominal wages, prices, and perceptions adjust downward to this new price level. 0 The government increases spending to increase aggregate demand. 0 Nominal wages, prices, and perceptions adjust upward to this new price level. Which of the following is true according to the stickywage theory of aggregate supply as a result of the decrease in the money supply? Check a\" that apply. C] Nominal wages at the initial equilibrium are equal to nominal wages at the new shortrun equilibrium. [:1 Nominal wages at the initial equilibrium are greater than nominal wages at the new longrun equilibrium. C] Real wages at the initial equilibrium are greater than real wages at the new shorterun equilibrium. C] Real wages at the initial equilibrium are equal to real wages at the new longrun equilibrium. Judging by the impact of the money supply on nominal and real wages, this analysis V consistent with the proposition that money has real effects in the short run but is neutral in the long run
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