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Suppose the economy is in long run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. now assume that the central bank unexpectedly decreases the money supply by 6%.
A. Illustrate the short run effects on the macroeconomy by using the aggregate demand-aggregate supply model.
B. Illustrate the long run effects on the macroeconomy by using the aggregate demand- aggregate supply model.
C. Now assume that this monetary contraction was completely expected. Illustrate both short and long run effects on the macro economy by using the aggregate demand-aggregate supply model.
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