(Solved): Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 perce ...

Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent. Use your diagram to show what happens to output and the price jevel as the economy moves from the initial to the new short-run equillibrium. Now adiust the oraph to show the new long-run equilibrium. Now adjust the graph to show the new long-run equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? Nominal wages, prices, and perceptions adjust upward to this new price level. The government increases spending to increase aggregate demand. The govemment increases taxes to curb aggregate demand. Nominal wages, prices, and perceptions adjust downward to this new price level. Which of the following is true according to the sticky-wage theory of agoregate supply as a result of the decrease in the money supply? Check all that jeply: Nominal wages at the initial equilbrium are equal to nominal wages at the new short-run equilibrium. Nominal wages at the initial equilibrium are greater than nominal wages at the new long-run equilibrium. Real wages at the initial equilbrium are greater than real wages at the new short-run equilibrium. Real wapes at the initial equilibrium are equal to real wages at the new long-run equilibrium. Judging by the impact of the money supply on nominal and real wages, this arialys: consisent with the proposition that money has reat eftects in the short run but is neutral in the long run.