[Related to Solved Problem 9.4] In the aftermath of the 2007-2009 financial crisis, the Fed became concerned about deflation. The two graphs to the right show the economy in equilibrium. Using the IS-MP model and the Phillips curve, show how a decrease in aggregate expenditure could cause deflation. 1.) Using the line drawing tool, show how a decrease in aggregate expenditure affects the economy. Properly label any curves that you draw. 2.) Using the point drawing tool, plot the new equilibrium point in the IS-MP model. Label this point B₁S 3.) Using the point drawing tool, plot the new equilibrium point in the Phillips curve model. Label this point Bpc- Carefully follow the instructions above, and only draw the required objects. Real interest rate IS₁ MP1 Output gap Select a graph by clicking it before selecting a tool from the palette. Inflation rate Output gap Q PC₁ Q G G Q
[Related to Solved Problem 9.4] In the aftermath of the 2007-2009 financial crisis, the Fed became concerned about deflation. The two graphs to the right show the economy in equilibrium. Using the IS-MP model and the Phillips curve, show how a decrease in aggregate expenditure could cause deflation. 1.) Using the line drawing tool, show how a decrease in aggregate expenditure affects the economy. Properly label any curves that you draw. 2.) Using the point drawing tool, plot the new equilibrium point in the IS-MP model. Label this point B₁S 3.) Using the point drawing tool, plot the new equilibrium point in the Phillips curve model. Label this point Bpc- Carefully follow the instructions above, and only draw the required objects. Real interest rate IS₁ MP1 Output gap Select a graph by clicking it before selecting a tool from the palette. Inflation rate Output gap Q PC₁ Q G G Q
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![[Related to Solved Problem 9.4] In the aftermath of the 2007-2009 financial crisis, the Fed became
concerned about deflation.
The two graphs to the right show the economy in equilibrium. Using the IS-MP model and the
Phillips curve, show how a decrease in aggregate expenditure could cause deflation.
1.) Using the line drawing tool, show how a decrease in aggregate expenditure affects the economy.
Properly label any curves that you draw.
2.) Using the point drawing tool, plot the new equilibrium point in the IS-MP model. Label this point
B₁S
3.) Using the point drawing tool, plot the new equilibrium point in the Phillips curve model. Label this
point Bpc-
Carefully follow the instructions above, and only draw the required objects.
Real interest rate
IS₁
MP1
Output gap
Select a graph by clicking it before selecting a tool from the palette.
Inflation rate
Output gap
Q
PC₁ Q
G
G
Q](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3830874b-9682-48b0-836e-e7ab54ec9fc5%2Fcd32d769-7825-42fd-bf2f-bd5e4174ff01%2Fq1kvkwq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:[Related to Solved Problem 9.4] In the aftermath of the 2007-2009 financial crisis, the Fed became
concerned about deflation.
The two graphs to the right show the economy in equilibrium. Using the IS-MP model and the
Phillips curve, show how a decrease in aggregate expenditure could cause deflation.
1.) Using the line drawing tool, show how a decrease in aggregate expenditure affects the economy.
Properly label any curves that you draw.
2.) Using the point drawing tool, plot the new equilibrium point in the IS-MP model. Label this point
B₁S
3.) Using the point drawing tool, plot the new equilibrium point in the Phillips curve model. Label this
point Bpc-
Carefully follow the instructions above, and only draw the required objects.
Real interest rate
IS₁
MP1
Output gap
Select a graph by clicking it before selecting a tool from the palette.
Inflation rate
Output gap
Q
PC₁ Q
G
G
Q
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