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Suppose the central banks is following a constant- money-growth-rate rule and the economy is hit with a severe economic downturn. Use an aggregate supply and
Suppose the central banks is following a constant- money-growth-rate rule and the economy is hit with a severe economic downturn. Use an aggregate supply and demand graph to show the possible effects on the economy. How does this situation reflect on the credibility of the central bank if it maintains the money growth rule? How does it reflect on the central bank's credibility if it abandons the money growth rule to respond to the downturn?
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