Figure 13.12 shows what happens if the AE curve shifts out temporarily and the central bank raises
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FIGURE 13.12 Countercyclical Policy with Time Lags (A) Real interest rate (B) Output Without time lags With time lags 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 Year Year AE curve shifts to right. AE curve shifts back AE curve shifts to right. AE curve shifts back to initial position. to initial position. (C) Inflation rate With time lags Without time lags 2019 2020 2021 2022 2023 2024 Year
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Lets explore the impact on output first A positive expenditure shock shifts the AE curve to the righ...View the full answer
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