Answered: Model the short- and long-term effects…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter19: The Macroeconomic Perspective

Section: Chapter Questions

Problem 27CTQ: How might you measure a green GDP?

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Question

Through bond purchases, a nation's central bank injects money into the economy. One of the short-term effects is to drive the price level from 100 up to 104.2. Other short-term effects occur as well, but these fade in the long run, even as the price level climbs still higher.

Model the short- and long-term effects in the graph below by dragging one or more curves to new positions.

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"!
Price level (P)
100
LRAS
8
10
Q
SRAS
AD
Real GDP (Y)

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