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Question 2:.(40 points) Use the extended IS-LM model and diagram to show and explain the effects on output of a decrease in risk premium. Assume

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Question 2:.(40 points) Use the extended IS-LM model and diagram to show and explain the effects on output of a decrease in risk premium. Assume that the government has an interest rate target. a) Write the equations of the extended IS-LM model. Explain the variables included in the equations. b) Describe the factors that could cause such a fall in the risk premium

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