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Assume the economy is fully stabilized and back to potential output afterthe fiscal policy, but the Fed miscalculated potential output and thinks the output gapis
Assume the economy is fully stabilized and back to potential output afterthe fiscal policy, but the Fed miscalculated potential output and thinks the output gapis negative. The fed thus decided to lower the federal funds rate. Discuss the dynamicsof this economy if the Fed implemented that policy. Be specific about what happensin the IS-MP diagram and the Phillips Curve, and about what happens to the interestrate, short-term output, and inflation. Use keywords: "federal funds rate", "expansion","sticky", and "investment
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