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Suppose you are in charge of government policy. You can introduce one tax/subsidy to get rid of the negative effects of the banking spread shock.

Suppose you are in charge of government policy. You can introduce one tax/subsidy to get rid of the negative effects of the banking spread shock. What would you tax/subsidize? Use the model we have seen in class to make your point. Ideally, you want to make sure that the tax does not distort the aggregate supply part of the economy.

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