Why the policy has the effect of the open-market operation

Reference no: EM13237439

The economy is in a recession with high unemployment and low output.

a. Draw a graph of aggregate demand and aggregate supply to illustrate the current situation. Be sure to include the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve.

b. Identify an open-market operation that would restore the economy to its natural rate.

c. Draw a graph of the money market to illustrate the effect of this open-market operation. Shwo the resulting chagne in the interest rate.

d. Draw a graph similar to the one in part (a) to show the effect of the open-market operation on output and the price level. Explain in words why the policy has the effect that you have shown in the graph.

Reference no: EM13237439

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