38. Problem
Recession
Shift AD to
Right
Inflation
Shift AD to Left
Tools
Increase
Money Supply
Decrease
Money Supply
Reserve Ratio Lower Raise
Discount Rate Lower Raise
Open Market
Operations
Buy Bonds
from the Banks
Sell Bonds
to the Banks
Excess Reserves
Interest Rate
Lower Raise
39. Q 19.
Suppose the Fed
permanently increases
money supply growth by 3
percent. Using the copy
tool, show the short run
effect this would have by
shifting and labeling the
appropriate curve(s). Plot
the new short run
equilibrium using the
double drop line tool and
label it Equilibrium 2.
Step 2: Show how the
economy will adjust in the
long run by shifting and
labeling the appropriate
curve(s). Plot the new long
run equilibrium and label it
Equilibrium 3.
40. Q 20
Suppose that to reduce
inflation the Fed
permanently decreased
money supply growth by 5
percent. Using the copy
tool, show the short run
effect this would have by
shifting and labeling the
appropriate curve(s). Plot
the new short run
equilibrium using the
double drop line tool and
label it Equilibrium 2.
Step 2: Show how the
economy will adjust in the
long run by shifting and
labeling the appropriate
curve(s). Plot the new long
run equilibrium and label it
Equilibrium 3.
