Early stages of severe economic contraction

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Question

In the early stages of a severe economic contraction there is often downward pressure of prices (deflation). Some economists believe that this deflationary pressure is stabilizing for the economy while others argue that the deflation leads to further destabilizing of the economy. A. Using the AS-AD framework, illustrate and explain how deflation might be stabilizing if there were a shock to Aggregate Demand and help push the economy back toward full-employment.

Reference no: EM133629720

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