1 answer

1. Use the IS-LM model to show how an unexpected inflation could result in a higher...

Question:

1. Use the IS-LM model to show how an unexpected inflation could result in a higher short-run GDP.

2. Use the IS-LM model to show how an expected inflation could result in a higher short-run GDP. Explain using an IS-LM diagram. Make sure you explain in words what happens in your diagram.

3) Suppose a closed economy is initially in the long run equilibrium.

Suppose the monetary base of this economy is $100 million, of which people carry $10 million in form of currency/cash.

a). Assuming the banks keep a reserve ratio of 5%, what is the money supply in this economy?


Answers

1) The unexpected inflation will shift the LM curve to right. This will increase the short run GDP and it will reduce the pri

.

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