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Consider the AS-AD model for the US economy immediately after the pandemic shock, hence with a negative output gap and a level of inflation below
Consider the AS-AD model for the US economy immediately after the pandemic shock, hence with a negative output gap and a level of inflation below the Fed target. Show the effect on this short term equilibrium of the substantial support provided to US citizen by the Government (the 'Biden plan'). What have been the effects of the plan on the US output gap and inflation rate? What happens to the interest rates set by the Fed?
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