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Q. Explain IS curve with inflation?
The IS curve with inflation
We can draw IS curve for a given value of πe. As earlier explained, IS curve isn't affected by changes in P. Though it will shift upwards when πe increases.
Figure: The IS curve and expected inflation.
If πe increases, R should increase by the same amount to keep r and YD unaltered.
Price/Feeder Quantity Demanded Quantity Supplied $300 500 1800 270 600 1700 240 700 1600 210 800 1500 180 1000 1400 150 1100 1300 120 1200 1200 90 1300 1100 60 1400 1000 30 1500 90
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