6 In the economy described in problem 1, suppose that people anticipate deflation (a falling price level)
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6 In the economy described in problem 1, suppose that people anticipate deflation (a falling price level) but aggregate demand turns out to not change. a What happens to the short-run and long-run aggregate supply curves? (Draw some new curves if you need to.) b Using the graph, describe the initial effects of anticipated deflation. c Using the graph, describe what happens as it becomes obvious to everyone that the anticipated deflation is not going to occur.
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