1. Use the information given below to solve the following: a) If Money supply (M) is...

1. Use the information given below to solve the following:

a) If Money supply (M) is fixed at 400 and Velocity (V) is fixed at 20, then draw the classical aggregate

demand curve. You may show any 4 points on the curve, but keep in mind the answer to (b) below.

b) If the full employment output level is fixed at 1000, draw the classical aggregate supply along with the aggregate demand above and clearly mark the equilibrium price and output in the graph above.

c) If M increases to 800, how would the classical aggregate demand curve change? What would the new equilibrium price and Y be? Clearly mark them on the graph. What does it say about the effectiveness of monetary policy under the classical model?

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Expert Solution

Rahul Sunny answered 1 year ago

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