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For all of the questions below consider a closed economy. Make sure to include an explanation...

For all of the questions below consider a closed economy. Make sure to include an explanation for each question.

2) Using an IS-LM-FE framework analyze the consequences of the following event according to a Real Business Cycle economist (also called a Neo-classical economist). Government spending increases temporarily.

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The increase in government expenditure increases the aggregate demand which shifts the IS curve towards the right increasing output from the initial equilibrium Y0 to Y1. The increase in output increases the demand for labour and the wage rate shifting the FE curve also towards the right with output Y1 and a higher interest rate.

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