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Suppose there is a negative output gap of 12 (the output gap is the difference between current output and desired output). The current real interest
Suppose there is a negative output gap of 12 (the output gap is the difference between current output and desired output). The current real interest rate, r, is 0.05 and the investment function reads | = 20- 200r. The mpc is 0.5. By how much should the central bank decrease the real rate to close the output gap? Answer up to two decimal points 0.03
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