# 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?

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