Question

1. Suppose that, during the onset of the last recession, the velocity of base money fell.
   1. Show the effect of this using a graph of the market for non-money goods (AD-AS) and a money market graph where the supply of money is perfectly inelastic.
2. 2. Show the effect of this using a graph of the market for non-money goods (AD-AS) and a money market graph where the supply of money is relatively elastic. (Be sure to show how the change in the money market feeds back to the change in the AD-AS graph)
3. 3. Why might the supply of money be perfectly inelasti Explain how this affects the ability of equilibrium to emerge in the money market and in the market for non-money goods.
4. 4. Why might the supply of money be relatively elastic. Explain how this affects the ability of equilibrium to emerge in the money market and in the market for non-money goods.

Answer 1

Grable shown: Supply of money is - Perfectly inelastic CAD-AST Perfectly inelastic supply Perfectly inelastic demand. IS P=OP OP Price is AX, AY, AZ S=OQ = 0Q Demand remains Same ie, AD Eda T Perfectly inelastic affects JT In case of Perfectly inclastic demand the Change in price will have no effect on the quantity demanded. I The consumer do not change their demand due to the change in poce. This usually is seen in case of necessities. Hence the equilibrium quantity will be same the - price might increase or or decrease

Grabh Shown: [lastic Subbley & Deaceed. Elastic Supply s Elastic Demand... Q Lewand - Elastic affect There's also price elasticity of demand this measure how responsive the quantity demanded is affected by a price change. I t O Overall, price elasticity measure how much the supply of demand of a product Changes based on a given change in price. Elastic means the product is considered sensitive to Price change So, that's why this affact the ability of equilibrium to emerge in the market.

Grabh Shown: [lastic Subbley & Deaceed. Elastic Supply s Elastic Demand... Q Lewand - Elastic affect There's also price elasticity of demand this measure how responsive the quantity demanded is affected by a price change. I t O Overall, price elasticity measure how much the supply of demand of a product Changes based on a given change in price. Elastic means the product is considered sensitive to Price change So, that's why this affact the ability of equilibrium to emerge in the market.