Question: Consider the AD / AS model. ( a ) Using the IS / LM model, show graphically how the aggregate demand curve is derived. (

Consider the AD

/

AS model.

(

)

Using the IS

/

LM model, show graphically how the aggregate demand curve is derived.

(

)

Suppose there is a fall in inflation expectations. Using the IS

/

LM model, show how the AD curve is affected. Considering an economy in a liquidity trap, does this analysis help us understand why central banks are anxious to avoid deflation?

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