Answer The Following Questions Using An Aggregate Demand Aggregate Supply Model

Answer the following questions using an aggregate demand-aggregate supply model when appropriate.

  1. Use an AD-AS model to represent an economy at long-run equilibrium.
  2. Then show what happens on your model when aggregate demand increases.
  3. Is the economy you model in an expansion or recession now? How about inflation?
  4. Continuing with the economy your are building, what type of monetary policy should you suggest be taken by the Fed?
  5. In implementing the policy you suggest, which actions (please give at least two actions) should the Fed take to achieve this policy?
  6. Explain how your suggested monetary do to your AD-AS model in the short run? Please briefly outline the consequences of the Fed’s actions.

Please make sure that you label all the curves and points that you refer to from an initial equilibrium to a new equilibrium after the policy is implemented.

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