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6. The Federal Reserve cuts interest rates. Graphically show using a model of aggregate demand and aggregate supply the impac
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Case when interest rate declines, investment increases which causes aggregate demand to shift rightward.

In short run Aggregate demand shift rightward from AD0 to AD1 and the level of output rises from Y0 to Y1 and price level from P0 to P1. 13 22 23 24 25 26 27 28 29 30 31 Short kun pts Degiom 5 Monday 7 leril SRAS ********rcace AD Tuesday

In long run when aggregate supply curve is vertical shaped, increasing in aggregate demand from AD0 to AD1 will only raise the price level while keeping output level at constant level because in long run no matter how innovative your firm is your output wil increase upto a level.Tuesday Perie lesil thas by Eq AQ

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