Credit Squeeze and Macroeconomic Effects
VerifiedAdded on 2020/03/16
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AI Summary
This assignment examines the economic consequences of a credit squeeze. It analyzes how reduced lending by banks impacts aggregate demand, leading to a decrease in both price levels and real output in the short run. In the long run, the equilibrium price decreases, inflation reduces, but unemployment remains unaffected. The assignment utilizes graphs to illustrate these scenarios, highlighting the dynamic changes within an economy facing a credit squeeze.
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