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What occurs to u and y relative to the natural levels

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Suppose the economy is initially operating at Yn. Now suppose the Fed conducts a monetary contraction where Ms decreases. Using AS and AD, and IS-LM graphs, illustrate the initial equilibrium, and medium run equilibrium.

  1. What are the initial effects of the decrease in Ms Y, r, I, and C?
  2. What happens to u and Y relative to their natural levels during: the short run, and the medium run?
  3. What are the medium effects of the decrease in Ms on P, Y, r, I, and C?

Reference no: EM13396791

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