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In an economy, a new prime minister announced rather generous tax cuts for households, which led to noises in financial market, resulting in a very
In an economy, a new prime minister announced rather generous tax cuts for households, which led to noises in financial market, resulting in a very high inflation. The central bank of the economy has decided to stabilize the inflation using open mark sales. (It is a simplified economic situation of U.K in 2022.) What happens in the short run to the interest rate, income, consumption, investment, and price level of the economy? Explain in words. Hint) You can use Keynesian cross, liquidity preference theory/real money market equilibrium, IS-LM model, and AD-AS model. Assume that an economy is initially at the natural rate of unemployment. Additionally, it is assumed that everything else stays constant and stick price theory explains in short run
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