Question: Supposed there is a permanent negative aggregate demand shock due to a weakened in consumer expectations and business sentiment. Using IS-PC-MR model, (i) Explain the

Supposed there is a permanent negative aggregate demand shock due to a

weakened in consumer expectations and business sentiment. Using IS-PC-MR

model,

(i) Explain the effects of the shocks on national income and inflation rate.

(ii) What we can predict the action from the central bank in achieving their

targeted level of inflation rate?

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