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1.Use the 3-equation model diagrams to show how the economy can fall into a deflation trap. Explain, with reference to the diagram, how the central

1.Use the 3-equation model diagrams to show how the economy can fall into a deflation trap. Explain, with reference to the diagram, how the central bank/government can intervene to escape the trap. Show the relevant IS curve and re-label the MR as the PR to indicate that fiscal policy is being used. Are there any reasons why these policies might not work?

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