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Exercise 16.1 Thinking and Communication Using the Keynesian model: 1. Draw and fully label an AD/AS diagram with AD at a level that creates a
Exercise 16.1 Thinking and Communication Using the Keynesian model: 1. Draw and fully label an AD/AS diagram with AD at a level that creates a deflationary/recessionary gap. 2. Identify the three different phases of the Keynesian AS curve on the diagram. 3. Add two AD curves to each phase of the AS curve [ie six AD curves in all). 4. Explain what will happen if there is a shift to the right in AD in each of the phases, using the AD curves that you have drawn. Exercise 16.2 Thinking and Communication Using the new classical model: 1. Draw and label fully an AD/AS diagram with the economy in short-run equilibrium at the full-employment level of income. 2. Add and label a new AD curve to the right of the one that you have drawn. 3. Explain what will happen in the short run and the long run
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