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Suppose an Economy Suffers a Real Shock That Lowers the Solow

Question 132

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Suppose an economy suffers a real shock that lowers the Solow growth rate and the SRAS. Will a fiscal policy be effective in taking the economy back to its original point? How would the existence of crowding out affect your answer? Illustrate your answer with the use of a diagram.

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Figure: A Real Shock blured image Expansionary fisca...

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