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| The diagram below shows the economy growing at the Solow growth rate with Spending ( M + v) at 10% . Redraw the graph below and answer with a graph each of the following questions. Assume that prices are sticky. Note: you should redraw the ASAD graph below two separate times, once for part a, then again for part b— do NOT do give all your answers on one graph. One graph = zero points. Be sure to LABEL all changes (i.e. x axis, y-axis, intersections….) a. Show what happens if consumers and businesses become more optimistic about the economy—where is Y A ? where is the new P L ? b. Once The Federal Reserve bank sees what happened in part a, she decides to fully reverse the effect in part a. by changing M. Illustrate what happens if she does her job just right |
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