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Transcript
Module 32 Money, Output, and Prices in the Long Run KRUGMAN'S MACROECONOMICS for AP* Margaret Ray and David Anderson What you will learn in this Module: • The effects of an inappropriate monetary policy • The concept of monetary neutrality and its relationship to the long-term economic effects of monetary policy Answer the following based on the next slide. 1. Increasing the money supply is _________________________ policy. 2. The interest rate would __________. 3. A __________ interest rate shifts AD _____. 4. In SR, real GDP ________ and aggregate P level __________. 5. Nominal wages ______________, shifting SRAS _______. 6. LR equilibrium would be back at _________ ___, at a ______ P level. 7. In LR, ____________________ doesn’t increase GDP, if causes ______________. 8. What is true with a decreased money supply? Short-Run and Long-Run Effects of an Increase in the Money Supply Increases in the money supply initially lead to an increase in output, but in the long run increased nominal wages reduce SRAS and lead only to an increased price level. Money Neutrality Changes in the Money supply have No real effects On the economy. LR only effect is Aggregate P level Higher. List the Steps which got P to Pii State, in order of movement, which curves moved in which direction. Include the correct graph labels for Real GDP and Price Level with each move. Example: The money supply increases. 1. AD shifts _____. AD becomes AD1. 2. Yf moves to _____. 3. E becomes ____. 4. P becomes ____. You fill in these blanks and continue with the steps. Changes in the Money Supply and the Interest Rate in the Long Run The Money supply increases. List the steps which get i% to i%’ and back to i%. Refer back to the effect on P level with money neutrality.