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What effects would each of the following have on aggregate demand or     aggregate supply? Justify your...

What effects would each of the following have on aggregate demand or     aggregate supply? Justify your answer. In each case use a diagram to show the expected effects on the equilibrium price level and real output level in the economy. Assume that all other things remain constant and prices are inflexible downward.

(a) A reduction in interest rates at each price level.

(b) A sizable increase in labor productivity.

(c) The nation’s currency appreciates against its major trading partners .

Solutions

Expert Solution

For b and c- Refer the images

a) Explanation of the diagram:

(a) A reduction in interest rates at each price level causes:

  • An increase in the money supply
  • LM shifts to the right
  • Output level increases

Refer to the diagram

Rahul Sunny answered 6 months ago
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