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5. Suppose it is mid-2007 and the stock market has been growing rapidly for the past five vears. Some economists argue that the stock market
5. Suppose it is mid-2007 and the stock market has been growing rapidly for the past five vears. Some economists argue that the stock market has become "overvalued" and thus a "crash" is imminent. (8 marks) a) How does a rising stock market affect aggregate demand? Show this in an AD AS diagram. b) For a central bank that is trying to keep real GDP close to potential, explain what challenges are posed by a rapidly rising stock market, c) Suppose the stock market "crashes," falling suddenly by approximately 33 percent as it did in the fall of 2008. How does this affect aggregate
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