The following graph gives the long-run aggregate-supply curve (LRAS), the short-run aggregate-supply curve (AS), and the aggregate-demand curve for a particular economy.
Aggregate DemandAggregate SupplyPrice LevelQuantity of OutputAggregate Demand Aggregate Supply LRAS
The economy is in_____ with ______ unemployment and______ output.
To return the economy to its natural rate, the Fed could_____ government bonds. (fill in the blanks).
Illustrate the effect of this open-market operation on the following graph. Show the resulting change in the interest rate.
Money DemandMoney SupplyInterest RateQuantity of MoneyMoney Demand Money Supply
On the original graph, show the effect of the open-market operation on output and the price level.