Author Question: Show the effects of a permanent increase in the money supply. What will be an ideal ... (Read 48 times)

Chloeellawright · **on:** Jun 30, 2018

Show the effects of a permanent increase in the money supply.

What will be an ideal response?

Question 2

The Smoot-Hawley Tariff Act of 1930 has generally been associated with

A) falling tariffs.
B) free trade.
C) intensifying the worldwide depression.
D) recovery from the worldwide depression.
E) non-tariff barriers.

shayla · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

(1 ) AA-shifts right-increase in Y and E both higher than if money supply change was temporary rising price level makes AD decrease, DD shifts left
(2 ) rising prices also reduce real money supply, so AA shifts left (although not all the way back to original position)
(3 ) AA and DD reach short run equilibrium at an E that is higher than initially, but lower than the short run effects of the shift.
(4 ) Output returns to initial level because higher prices reversed the effect of the initial depreciation on Aggregate Demand.

Answer to Question 2

C