5. Suppose that is determined by two factors: financial panic and asset purchases. (Chapter 23) Using an MP curve and an AS/AD graph, show how a sufficiently large financial panic can pull the economy below the effective lower bound and into a destabilizing deflationary spiral. b. Using an MP curve and an AS/AD graph, show how a sufficient amount of asset purchases can reverse the effects of the financial panic depicted in part (a).

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5. Suppose that is determined by two factors: financial panic and asset purchases. (Chapter
23)
Using an MP curve and an AS/AD graph, show how a sufficiently large financial panic can
pull the economy below the effective lower bound and into a destabilizing deflationary spiral.
b.
Using an MP curve and an AS/AD graph, show how a sufficient amount of asset
purchases can reverse the effects of the financial panic depicted in part (a).
Transcribed Image Text:5. Suppose that is determined by two factors: financial panic and asset purchases. (Chapter 23) Using an MP curve and an AS/AD graph, show how a sufficiently large financial panic can pull the economy below the effective lower bound and into a destabilizing deflationary spiral. b. Using an MP curve and an AS/AD graph, show how a sufficient amount of asset purchases can reverse the effects of the financial panic depicted in part (a).
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