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Suppose that an economy faces a liquidity trap and that the output of this economy is lower than its natural level. The government wishes to
Suppose that an economy faces a liquidity trap and that the output of this economy is lower than its natural level. The government wishes to increase the output to its natural level. To do so. the government has to choose between an expansionary fiscal policy and an expansionary monetary policy. Which policy is more effective in achieving the government's policy goal? Explain. (Hint: Using the AA-DD model in a liquidity trap case could be heipiui.)
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