Describe the effects of the following events on price level

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Using aggregate supply and aggregate demand curves to illustrate, describe the effects of the following events on the price level and on equilibrium GDP in the long run assuming that input prices fully adjust to output prices after some lag:

a. An increase occurs in the money supply above potential GDP

b. A decrease in government spending and in the money supply with GDP above potential GDP occurs

c. Starting with the economy at potential GDP, a war in the Middle East pushes up energy prices temporarily. The Fed expands the money supply to accommodate the inflation.

Reference no: EM131308911

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