An economy is initially in long-run equilibrium. The introduction of an electronic payments system dramatically reduces the demand for money in the economy.

a. What is the short-iun impact on prices and output of the new system?
b. What can the central bank do, if anything, to counteract the short-tun changes in output and prices?
c. If the central bank does not take any policy actions, what will be the long-run impact of the electronic payments system on prices and output?

Question

An economy is initially in long-run equilibrium. The introduction of an electronic payments system dramatically reduces the demand for money in the economy.

a. What is the short-iun impact on prices and output of the new system?
b. What can the central bank do, if anything, to counteract the short-tun changes in output and prices?
c. If the central bank does not take any policy actions, what will be the long-run impact of the electronic payments system on prices and output?

Quizplus · Accepted Answer

The Answer of An economy is initially in long-run equilibrium. The introduction of an electronic payments system dramatically reduces the demand for money in the economy.

a. What is the short-iun impact on prices and output of the new system?
b. What can the central bank do, if anything, to counteract the short-tun changes in output and prices?
c. If the central bank does not take any policy actions, what will be the long-run impact of the electronic payments system on prices and output?

An Economy Is Initially in Long-Run Equilibrium