a) If the economy is initially at the WS-PS equilibrium, what happens when there is a sudden increase in the aggregate demand in the economy. b) Use the WS-PS model to graphically derive a set of Philips curves and explain the economic intuition behind the diagram. Provide an explanation of how a situation of deflation could occur. What are you assuming about the real interest rate in the deflationary scenario?

a) If the economy is initially at the WS-PS equilibrium, what happens when there is a sudden increase in the aggregate demand in the economy. b) Use the WS-PS model to graphically derive a set of Philips curves and explain the economic intuition behind the diagram. Provide an explanation of how a situation of deflation could occur. What are you assuming about the real interest rate in the deflationary scenario?

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter16: Monetary Policy

Section16.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 4SQP

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