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The U.S. economy is in a recession and the IS-LM suggests we are in a liquidity trap.

a) Illustrate the situation using the AD-AS and IS-LM diagrams.

b) Explain what a liquidity trap.

c) If the there is no monetary or fiscal policy change what does the price adjustment mechanism predict?

d) Why might this be un-desirable?

e) What would you recommend for macroeconomic policy makers in the U.S. Show the impacts graphically? What would be the downside to your recommended policy(ies)?

International Economics, Economics

  • Category:- International Economics
  • Reference No.:- M9814262

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