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Consider an economy that is initially in recession

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Consider an economy that is initially in recession. Use the adapted IS-LM model (one which takes into account expectations of future values of fundamentals) to compare two monetary strategies: in strategy A, the central bank announces a one-year reduction in the interest rate; in strategy B, the central bank commits to maintain the lower interest rate for three years. Explain the differences in the yield curve under strategies A and B.

Reference no: EM131966255

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