Use the Dynamic Aggregate Demand and Aggregate Supply Model and Start

question 35

Essay

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the Federal Reserve to conduct an expansionary monetary policy.Briefly explain the condition of the economy and what the Federal Reserve is attempting to do.

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Definitions:

Physical Capital

Tangible assets used in the production of goods and services, such as machinery, buildings, and equipment.

Production Possibilities Curve

A graph that shows the different quantities of two goods that an economy can produce using all of its resources efficiently.

Scarcity

Fundamental concept of economics that indicates that there is less of a good freely available than people would like.

Production Possibilities Curve

A graphical representation that shows the maximum combination of goods or services that can be produced with a fixed amount of resources.