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

[Chloeellawright]

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]

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

[Chloeellawright]

TYSM

[diana chang]

Gracias!