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Discretionary policy action

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Reference no: EM131886144

Consider a deflationary shock to the economy caused by a collapse in world demand and the nation's export income. Using the AS-AD model, explain the adjustment to long-run equilibrium when money wages are flexible. How will your answer change if money wages are rigid downwards? In this case what kind of discretionary policy action may restore long-run equilibrium?

Reference no: EM131886144

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