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Chapter 4 - Classical Macroeconomics (II) - complete and notes

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outward, increasing the level of employment and, hence, the level of output
Remember! Only changes on the supply-side can affect Y and N in the CM
What happens to prices? 
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Putting it all Together
1. Suppose that instead of issuing bonds, the government prints money to finance its deficit. Show what will happen to output, employment, prices and the rate of interest.
2. Suppose a hurricane wipes out half of the nation’s capital stock. Show what will happen to output, employment, prices and the rate of interest.
3. Suppose households decide to save less (i.e. increase current consumption). Show what will happen to output, employment, prices and the rate of interest.
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