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Suppose that U.S. government actively uses the fiscal policy to fight against recession and rising unemployment. To incorporate this behavior of government into the model, let’s assume that the government spending equation is given by where 0.
Assume the reminder of the model is unchanged from the original setup.
a) Explain why the above equation could represent the active fiscal policy to fight against recession.
where QS is the quantity of boxes supplied per month. The equilibrium quantity of boxes in the market is ...and the number of firms in this industry when it is in long-run
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