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Consider the economy in the graph below and assume it is at long run equilibrium. Consider an increase in government spending. If you assume adaptive

Consider the economy in the graph below and assume it is at long run equilibrium.

Consider an increase in government spending.

If you assume adaptive expectations the new short-run equilibrium will be in point .........

If you assume rational expectations the economy will move to point ...........

LAS AS H D C B A E G F K AD 0 Y* Y

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