Transcript Money, output and Prices in LR Macro_Module_32 money

Module 32
Money,
Output, and
Prices in the Long Run
KRUGMAN'S
MACROECONOMICS for AP*
Margaret Ray and David Anderson
What you will learn
in this Module:
• The effects of an inappropriate monetary
policy
• The concept of monetary neutrality and its
relationship to the long-term economic
effects of monetary policy
Answer the following
based on the next slide.
1. Increasing the money supply is
_________________________ policy.
2. The interest rate would __________.
3. A __________ interest rate shifts AD _____.
4. In SR, real GDP ________ and aggregate P
level __________.
5. Nominal wages ______________, shifting
SRAS _______.
6. LR equilibrium would be back at _________
___, at a ______ P level.
7. In LR, ____________________ doesn’t
increase GDP, if causes ______________.
8. What is true with a decreased money supply?
Short-Run and Long-Run Effects of
an Increase in the Money Supply
Increases in
the money
supply initially
lead to an
increase in
output,
but in the long
run increased
nominal wages
reduce SRAS
and lead only
to an
increased
price level.
Money Neutrality
Changes in the
Money supply have
No real effects
On the economy.
LR only effect is
Aggregate P level
Higher.
List the Steps which got
P to Pii
State, in order of movement, which curves moved
in which direction. Include the correct graph labels
for Real GDP and Price Level with each move.
Example: The money supply increases.
1. AD shifts _____. AD becomes AD1.
2. Yf moves to _____.
3. E becomes ____.
4. P becomes ____.
You fill in these blanks and continue with the
steps.
Changes in the Money Supply and the
Interest Rate in the Long Run
The Money
supply
increases. List
the steps which
get i% to i%’
and back to i%.
Refer back to
the effect on P
level with
money
neutrality.