Question: Question 3 [20 pts] In the coordination failure model, suppose that there is a permanent increase in the government spending. 1. Determine how this will

Question 3 [20 pts] In the coordination failure model, suppose that there is a permanent increase in the government spending.

1. Determine how this will affect output and employment. Illustrate graphically by drawing both the labour market and the output market. [15 pts]

2. Will real output become more or less volatile over time? [5 pts]

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