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Assume the British economy is in long-run macroeconomic equilibrium. It has a natural rate of unemployment of 8%. The government decides to pass a law
Assume the British economy is in long-run macroeconomic equilibrium. It has a natural rate of unemployment of 8%. The government decides to pass a law requiring that the unemployment rate be 4% and kept there. The government increases government spending and cut interests to meet this goal. Will this strategy work? Using the AS-AD model, explain what will happen in the short-run and the long-run.
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