Suppose that the central bank finds that the economy is operating as depicted in the accompanying macroeconomy graph and they wish to conduct expansionary monetary policy. Adjust the graph for the market for loanable funds and the macroeconomy to depict how successful expansionary monetary policy will impact both. Market for Loanable Funds The Macroeconomy Supply LRAS SRAS Interest rate Price level Demand AD Quantity of loanable funds Real GDPCentral bankers in Widgetsa have decided that inflation is too high and contractionary monetary policy is needed. First, position LRAS where it would be if contractionary policy is needed. Then, show the short-run results of this policy action by shifting the appropriate curves on the graphs. LRAS Supply SRAS Interest rate X Price level Demand AD Quantity of loanable funds Real GDP Select all of the actions that are contractionary policy choices the central bankers could use. decrease reserve requirements raise the interest rate for last-resort loans increase taxes decrease government spending sell bonds to banksThe graph shows the long-run aggregate supply (LRAS), short-run aggregate supply (SRAS), and aggregate demand (AD) curves for a given economy. Manipulate the curves to show the short-run effect of an increase in money supply. 10 LRAS Co SRAS V Aggregate price level A AD N 0 - 2 3 4 5 6 7 8 9 10 Real GDP In the short run, how will an increase in the money supply affect interest rates, the aggregate price level, and real GDP? Interest rates will The aggregate price level will Real GDP will increase decrease stay the same