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Suppose that the IS curve is not vertical, the LM curve is not horizontal, and there is no Pigou effect. The Fed increases the nominal
Suppose that the IS curve is not vertical, the LM curve is not horizontal, and there is no Pigou effect. The Fed increases the nominal money supply. Using an IS-LM diagram together with a diagram depicting aggregate demand and supply, compare the initial long-run equilibrium values of:
i)output
ii)price
iii)interest rates
with short-run equilibrium values and final long-run equilibrium values.
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