The federal reserve decreases money supply. In the short run: - Draw an IS/LM graph to...

The federal reserve decreases money supply.

In the short run:

- Draw an IS/LM graph to show the effect of this decrease.

-Effects of this policy regarding interest rates, investment, income?

What variable links the economy in the short run and the long run? What happens to this variable over time given the monetary policy?

Draw the aggregate demand and corresponding aggregate supply curves in the short run and long run. Show the any changes due to this policy.

What is the effect of the change in the key variable you found in the last question on real money balances? What will happen to the lm curve? Also income and output and prices?

Because we know the impact of contractionary monetary policy in the short run and the long run, what are the benefits and downsides of this policy?

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Expert Solution

Rahul Sunny answered 1 year ago

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