Question

England in 1997. Suppose the economy of England is initially in a long run equilibrium. Draw a Keynesian Cross (AE/AP). AD/AS diagram, IS/LM diagram, and Money Market diagram for England. Label Everything

Answer 1

England 's Economy in 1997,. As it is in long run Equilibrium.

Below are graphs showing long run equlibrium under Keynesian Cross, AD-AS,IS-LM and Money Market .

# Keynesian Cross and long run equlibrium

The above graph consists of aggregate Expenditure curve and Aggregate sullpy curve( 45°) long run aggregate sullpy curve is a vertical straight line .

At long run Equilibrium level of income ,there id full employment in the Economy.

#AD-AS and long run Equilibrium

The above graph shows aggregate demand ( negetive slope)& aggregate supply (+ ve slope) curves. SRAS curve shows potential output level corresponding to price level..

At the long run equlibrium ,where there is full employment in the economy, all three curves intersect one another, depicting that the real output equals the potential output and at full Equilibrium level.

# IS-LM graph and long run Equilibrium

The above graph shows intersaction of three curves depicting equlibrium rate of interest corresponding to gfp level in the economy

#Money Market equlibrium in the long run

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Money market Equilibrium in the long run occurs when demand for money ( -ve slope) equals supply of money ( vertical line) corresponding to long run aggregate supply curve.

The long run Equilibrium Quantity of money is determined corresponding to rate of interest.