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Q1. Assume economy is operating at potential level of Real GDP and unemployment equals its natural rate. Use an appropriate diagram to depict the impact

Q1. Assume economy is operating at potential level of Real GDP and unemployment equals

its natural rate. Use an appropriate diagram to depict the impact of the following events.

For each case also indicate the effect on Price level, Real GDP, Unemployment and the

government budget balance.

a. Government reduces the minimum nominal wage

b. Firms expect future growth in Real GDP and increase their purchases of physical

capital

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