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Country A is experiencing a recessionary gap. a. Draw a correctly labeled AD-AS model showing this. Label the recessionary equilibrium price level as PL
Country A is experiencing a recessionary gap. a. Draw a correctly labeled AD-AS model showing this. Label the recessionary equilibrium price level as PL and current output as Y. b. Draw the corresponding long-run and short-run Phillips curves. Label the current short- run equilibrium as point A. c. According to monetarists, in the long run, this economy will self-correct. i. According to monetarists, what will shift, and in which direction will it shift? ii. Explain why this shift would occur. iii. Show the effect of this on your original Phillips curve. d. Keynesian economists would advise: i. Monetary or fiscal policy? ii. Identify the appropriate tools for this recessionary gap. iii. Draw what would happen on your original AD-AS diagram after these tools were implemented. e. Let's say the central bank of Country A decides to buy bonds. i. Do interest rates increase, decrease, or stay the same? ii. How is the exchange rate for Country A's currency affected: appreciate, depreciate, or stay the same?
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a ADAS Model In a recessionary gap the aggregate demand AD curve intersects the aggregate supply AS curve to the left of the longrun equilibrium indic...Get Instant Access to Expert-Tailored Solutions
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