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Think about under what conditions of AD, SRAS, and LRAS the Fed would want to enact expansionary monetary policy. On the left, draw the money
Think about under what conditions of AD, SRAS, and LRAS the Fed would want to enact expansionary monetary policy. On the left, draw the money supply and money demand before and after this policy. On the right, draw the AD, SRAS, and LRAS functions before and after this policy, assuming we were in short run equilibrium (but not long run equilibrium) before the policy, and the policy brings the economy to long-run equilibrium. Clearly label all axes, functions, and relevant points and shifts or movements on both graphs! Problem B: Contractionary Monetary Policy (7 points) Think about under what conditions of AD, SRAS, and LRAS the Fed would want to enact contractionary monetary policy. On the left, draw the money supply and money demand before and after this policy. On the right, draw the AD, SRAS, and LRAS functions before and after this policy, assuming we were in short run equilibrium (but not long run equilibrium) before the policy, and the policy brings the economy to long-run equilibrium. Clearly label all axes, functions, and relevant points and shifts or movements on both graphs
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