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1. Assume the US economy begins at its long-run equilibrium. Then, a large negative demand shock hits the economy, which lowers inflation and output. For

1. Assume the US economy begins at its long-run equilibrium. Then, a large negative demand shock hits the economy, which lowers inflation and output. For each of the following policy responses, write the direction (up, down or no change) to describe the movement in inflation and output. The short-run (SR) is the change due to the policy response, if any, relative to the equilibrium after the original demand shock. The long-run (LR) is the additional change that occurs, if any. SR Inflation SR Output LR Inflation LR Output No policy response Autonomous easing of monetary policy Autonomous tightening of monetary policy

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