Question

Suppose that the economy currently is in long-run equilibrium. Explain the short- and long-run adjustments that will take place in an aggregate demand-aggregate supply diagram if the Fed expands the quantity of money in circulation.

Short answer

An arrangement drive by the focal financial power Fed, to expand the quantity of money available for use is the expansionary financial approach.

Step-by-step solution

introduction

The total interest is a large scale view of the singular interest examination. It is a quantitative total of the singular interest for labour and products in the economy.

explanation part (1)

The economy is known to be in a long-run harmony. Now the Original Aggregate Demand Curve, Short-run Aggregate Supply bend and Long-Run Aggregate inventory bend meet one another. The equilibrium cost level in the economy is at the Long Run possible GDP.

explanation part (2)

In the short run, this shift makes the economy settle at a greater cost level as the short-run total inventory bend stays unaltered. Be that as it may, the production level in the economy is impacted by the greater expense of creation consequent upon the more exorbitant costs of information sources coming about because of the expansion or greater cost level.