(i) Assume that the economy initially at the WS-PS equilibrium. What happens when there is...
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Accounting
(i) Assume that the economy initially at the WS-PS equilibrium. What happens when there is a sudden upswing in the aggregate demand in the economy?
(ii) Use the WS-PS model to graphically derive a set of Phillips curves and explain the economic intuition behind the diagram. Provide an explanation of how a situation of deflation could occur. What are you assuming about the real interest rate in the deflationary scenario?
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