Consider an economy that is initially at full employment level. In order to advance the state of technology, suppose that the government starts investing in research and development programs, and gives tax breaks to firms who invest in technology and innovation. Using the IS-LM-PC model for a closed economy, discuss the effects of these policy changes: in the short-run; and in the medium-run with a central bank policy rate adjustment. Your discussion should make explicit reference to diagrams that illustrate adjustment dynamics.

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