AD and AS for Natural Rate of Unemployment Suppose our economy has a GDP of $19 trillion and has an unemployment rate of 5% (Natural rate of unemployment).
Now assume that the Fed announces that it is reducing the money supply by 6% (a completely “expected” change).
A) Use AD and AS model to explain the short run effects of this change on real GDP, on unemployment rate, and on the price level.
B) Use AD and AS model to explain the long run effects of this change on real GDP, on unemployment rate, and on the price level.
