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q4 Question 4 (10 marks) (3) Assume that in the initial equilibrium the nominal interest rate is zero and R = 1'. Using the standard

q4

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Question 4 (10 marks) (3) Assume that in the initial equilibrium the nominal interest rate is zero and R = 1'. Using the standard IS-MP-PC framework explain what would happen to the economy if it is hit by a large negative demand shock. Is there anything the policymakers can do about that? (b) Comment on the following statement: \"If AD curve is vertical, monetary policy is ineffective\

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