We have discussed stagflation in this course. Explain how stagflation can be caused in an economy. Include an explanation of the shift in the AD-AS diagram that could cause stagflation, and possible reasons for such a shift. Please do not draw graphs - a written explanation is all that is required.  

(b) Recall our class discussion on the money market, money demand and money supply. Suppose you are studying the money market in an open economy. You now see that the money demand in the money market decreases. How might this change in the money market affect the economy? Explain with respect to each of the elements of the AD equation (the expenditure equation), which is Y = C + I + G + NX. Please do not draw graphs - a written explanation is all that is required.

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a Stagflation is a phenomenon where an economy experiences stagnant economic growth along with high inflation It can occur when there is a decrease in ... View the full answer