Using the integrated DAD/DAS and EAPC framework, analyse the effect of an unexpected increase in aggregate demand
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Using the integrated DAD/DAS and EAPC framework, analyse the effect of an unexpected increase in aggregate demand assuming that markets adjust relatively rapidly. Compare the adjustment path of the economy when inflationary expectations remain anchored with that when expectations are based on actual inflation in the previous period.
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If inflationary expectations remain anchored the EAPC and DAS curves will be unaffected by an unexpected increase in aggregate demand If however infla...View the full answer
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