Aggregate demand and aggregate supply cheat sheet

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     1.If the rr = 10% and the money supply is increased by $300,000, how much will that increase the overall money Supply according to the simple money multiplier (assuming no excess reserves)? It will increase the overall Money supply by $30,000.

2.For the following questions talk About the effects on the money supply, employment, output, interest rates, and The price level

     a. Briefly detail the short-run Effects of expansionary monetary policy. Will cause an increase in average interest rates in an economy, The short-run is the time before the money supply can affect the price level in The economy.

     b. Briefly detail the long-run Effects of expansionary monetary policy. Will cause an increase in average interest rates in an Economy, In the Long-Run, money supply changes can affect the price level in The economy.

        c/ Briefly detail the short-run Effects of contractionary monetary policy. Aggregate demand, firms will experience an increase in Inventories, which in turn leads to a decrease in production. Output decreases, The monetary authorities expand the money supply, which in turn increases the aggregate demand curve to AD I.

     D. Briefly detail the long-run Effects of contractionary monetary policy. Contractionary policies are used to slow down potential Distortions, such as high inflation from an expanding money supply, Unreasonable asset prices or crowding-out effects in capital markets.

      3.Explain the concept of Monetary Neutrality. Idea that a Change in the stock of money affects only nominal variables in the economy such As prices, wages, and exchange rates, with no effect on real variables, like Employment, real GDP, and real consumption.

     4.Briefly explain why trade Deficits are not necessarily a bad thing.They’re not a bad Thing because if they import more things then that thing that they import would Be cheaper in that country.

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