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Describe how each of the following developments affects the

Suppose the IS and MP curves intersect on the flat part of the MP curve. Describe how each of the following developments affects the two curves, and thus how it affects the real interest rate and output in the short run:

a) Investment demand at a given real interest rate falls.

b) The central bank adopts a more expansionary real interest rate rule. That is, the real interest rate it wants to set for a given combination of output and inflation is lower than before.

c) Expected inflation rises.

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Business Management: Describe how each of the following developments affects the

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