Table 2    Refer to table 2. Instead, suppose the Bank of D…

Table 2    Refer to table 2. Instead, suppose the Bank of Duluth keeps no excess reserves in the T-account above. If a customer deposits an additional $7,000 into his account at the Bank of Duluth, banks keep no excess reserves and agents hold no currency in their hands, then the money supply will increase by

Table 2   Refer to table 2. Instead, suppose the Bank of Du…

Table 2   Refer to table 2. Instead, suppose the Bank of Duluth keeps no excess reserves in the T-account above. If a customer deposits an additional $5,000 into his account at the Bank of Duluth, banks keep no excess reserves and agents hold no currency in their hands, then the money supply will increase by

Scenario 1 In 2007-09, the U.S. economy went through its wor…

Scenario 1 In 2007-09, the U.S. economy went through its worst economic downturn in 30 years. As a consequence of the sharp increase in the price of housing in the U.S. in the mid-2000s, a rapid increase in the demand for oil drove up oil prices. Additionally, the collapse of the housing market, which led to Lehman Brothers’ bankruptcy, generated a financial crisis that reduced private spending.   Refer to scenario 1. Within the framework of the AD-SRAS-LRAS model discussed in class, what would happen with prices and output in the U.S. in the short-run if the economy initially starts in a situation of long-run equilibrium and is then hit by: (i) a shock that increases the price of oil; and (ii) a financial crisis that reduces private spending (assume that the shock in (i) is larger in magnitude than the shock in (ii). Call this new short-run equilibrium point A)?