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Imagine two economies. In Economy A, the central bank responds more to changes in inflation when setting interest rates than the central bank in Economy

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Imagine two economies. In Economy A, the central bank responds more to changes in inflation when setting interest rates than the central bank in Economy B. That is, m4 > mpg. where m 4, mp are the parameters of the monetary policy rule of country A and country B, respectively. Imagine the government in both countries increase its expenditures by 1% of potential GDP, 50 dg = 0.01 in both countries. Both countries have upward-sloping aggregate supply curves and downward-sloping aggregate demand curves. According to our AS-AD model, which country will experience more crowding out of investment? () 5ame crowding out Country A () Itis impossible to determine ) Country B

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