Suppose the economy is initially at full employment,with real GDP equal to potential GDP,and the expected inflation rate equal to the actual inflation rate.Use the IS-MP model and the Phillips curve to explain what happens if the economy experiences a negative demand shock,and the Bank of Canada responds to the shock by changing its target for the overnight rate.

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The Answer of Suppose the economy is initially at full employment,with real GDP equal to potential GDP,and the expected inflation rate equal to the actual inflation rate.Use the IS-MP model and the Phillips curve to explain what happens if the economy experiences a negative demand shock,and the Bank of Canada responds to the shock by changing its target for the overnight rate.

Suppose the Economy Is Initially at Full Employment,with Real GDP