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Hi, here is the question, thank you! This questions asks you to analyze the economy using the AD / AS model. Recall that the AD

Hi, here is the question, thank you!

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This questions asks you to analyze the economy using the AD / AS model. Recall that the AD /AS model is based on the following equations: R;'F=a,(7r,:Tr) where 17; is short-run output, art is ination, F is marginal product of capital, R, is the real interest rate and 5 is an ination shock. (a) Explain the economic intuition for each equation above.(3 points) (b) By combining the relevant equations above, show that the aggregate demand curve relates short-run output to ination. Explain why the aggregate demand curve slopes downwards. (5 points)

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