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Suppose the economy is initially at a long-run equilibrium. Then the central bank increases the money supply. Assuming any resulting inflation is unexpected, explain any
Suppose the economy is initially at a long-run equilibrium. Then the central bank increases the money supply. Assuming any resulting inflation is unexpected, explain any changes in GDP, unemployment, and inflation in the short-run that are caused by the monetary expansion. Explain your conclusions using three diagrams: (i) one for the IS-LM model, (ii) one for the AD-AS model, and (iii) one for the Phillips curve.
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