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Posted: June 5th, 2023
Assume that the economy records a decrease in real GDP
Draw the supply/demand for money diagram to show the following effects:Assume that the economy records a decrease in real GDP. Show the effect of this on money demand. If the central bank does not respond, how will this affect the value of money and the equilibrium price level?Now assume that together with the increase in GDP there is a decrease in the velocity of money. First explain what exactly this means, and then describe how your answer in part a. changes.
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