Suppose the economy is initially operating at the potential level of output. Graphically illustrate and explain what effect a one- time permanent reduction in the money supply will have on output and the price level in the short run and in the long run.

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The Answer of Suppose the economy is initially operating at the potential level of output. Graphically illustrate and explain what effect a one- time permanent reduction in the money supply will have on output and the price level in the short run and in the long run.

Suppose the Economy Is Initially Operating at the Potential Level