[II Graphical 5. Use the model of dynamic aggregate demand and aggregate supply to graphically illustrate the impact of a temporary 3-period increase in taxes (a three-period negative demand shock) on output and inflation when the economy is initially at long-run equilibrium. Also, draw the time path of output and inflation.

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III Graphical
5. Use the model of dynamic aggregate demand and aggregate supply to graphically illustrate the
impact of a temporary 3-period increase in taxes (a three-period negative demand shock) on
output and inflation when the economy is initially at long-run equilibrium. Also, draw the time
path of output and inflation.
Transcribed Image Text:III Graphical 5. Use the model of dynamic aggregate demand and aggregate supply to graphically illustrate the impact of a temporary 3-period increase in taxes (a three-period negative demand shock) on output and inflation when the economy is initially at long-run equilibrium. Also, draw the time path of output and inflation.
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