Suppose there is a permanent fall in private aggregate demand for a country’s output… 1 answer below »

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1. How does the DD schedule shift if there is a decline in investment demand? 2. Suppose there is a permanent fall in private aggregate demand for a country’s output (a downward shift of the entire aggregate demand schedule). What is the effect on output? What government policy response would you recommend? 3. A new government is elected and announces that once it is inaugurated, it will increase the money supply. Use the DD-AA model to study the economy’s response to this announcement.

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