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Question 9. (3 points] Suppose a closed economy is in recession and the economy is initially in a short-mn equilibrium at a level of output
Question 9. (3 points] Suppose a closed economy is in recession and the economy is initially in a short-mn equilibrium at a level of output below the natural rate. a) {2 points] If no policy action is when, use the ISLM model to graphically illustrate how the economy will adjust in the long-urn. b) {3 points) If a scal policy is used to return the economy to the natural rate of output, use the ISLM model to graphically illustrate the long-min equilibrium. What scal policy can be used? c) {3 points] Explain how investment, the interest rate, and the price level differ in the new long-run equilibrium in the two cases above {a and b]
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