We Can Use the Aggregate Demand and Supply Model to Think

question 63

Essay

We can use the aggregate demand and supply model to think about the long run as well as the short run.Using this framework, show the effects of (1) long-run growth in the money supply, and (2) long-run growth in GDP.Show that if the economy is growing, then the price level might fall over time even if the money supply is growing.

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Definitions:

Cash Account

An account that records all transactions involving cash, including receipts and payments.

Ending Balance

The amount of money remaining in a financial account at the end of a reporting period, after all transactions have been accounted for.

Cash Account

An account that records cash transactions, including cash receipts and disbursements.

Direct Labor Costs

Expenses directly tied to the production of goods or services, which include wages and benefits paid to employees who physically produce a product.