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Macroeconomics

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Monetary Line Shift

MACRO-DJEN07

In 2008, the US economy fell into a major recession. In response to the recession, the monetary authority (The Federal Open Market Committee – FOMC) significantly increased the money supply.

In a Keynesian model where only a fraction of firms in the economy have fixed prices, we would expect output to

, price levels to

, and interest rates to

as a result of this monetary injection.