Zero lower bound on adas and islm diagrams

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Zero Lower bound on ADAS and ISLM diagrams

a) Assume that the economy is at the zero lower bound. What is the slope of the AD curve? Draw this in a diagram.

b) What action can the government take to bring the economy closer to the natural level of output when the economy is at the zero lower bound? Show the effect of this using the ISLM model and the AS-AD model.

Reference no: EM132506838

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