3. Use Model of Section 9: Depressions. Suppose a financial bubble burst plunging the economy into a deep recession (that a large drop in aggregate demand, say consumer sentiment and animal spirits) - Describe the adjustment in this economy when inflation expectations do not respond in the short term and market forces work to restore equilibrium in the long-run - Describe the case where expectations start shifting downward in response of the shock, to the point where the interest rate reaches the zero lower bound. - Discuss the policy options available to monetary and fiscal authorities. 3. Use Model of Section 9: Depressions. Suppose a financial bubble burst plunging the economy into a deep recession (that a large drop in aggregate demand, say consumer sentiment and animal spirits) - Describe the adjustment in this economy when inflation expectations do not respond in the short term and market forces work to restore equilibrium in the long-run - Describe the case where expectations start shifting downward in response of the shock, to the point where the interest rate reaches the zero lower bound. - Discuss the policy options available to monetary and fiscal authorities