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Assume that the economy is initially in equilibrium at full employment. Suppose that the fed decreases...

Assume that the economy is initially in equilibrium at full employment. Suppose that the fed decreases money supply by 5 percent.
Using an aggregate demand and supply graph ( discussed in chapter 22 ), explain exactly what happens and why to aggregate output (real GDP) and the inflation rate in the short run.

(b) Using the same aggregate demand and supply graph, explain exactly what happens and why to aggregate output (real GDP) and the inflation rate rate in the long run.

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