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Analysis of the AD-AS model.

a) Illustrate what is the main policy message of the AS-AD model, and describe how does it relate to the 1930s Keynesian revolution in economic theory?

b) Provide as AS-AD graph of an economy in a deep recession and show the role of expansionary policy. (You need not go through all the details; just show and describe the basic shifts and why.)

c) Related to the above problem, why does AS-AD analysis of expansionary fiscal and monetary policy effectiveness typically begin with the economy at the natural rate of unemployment (NRU)?

d) What should today's policy-makers assume about the natural rate of unemployment?

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M920498

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