In: Economics
Consider the statement …. I think it’s clear the phenomenon of “secular (that is, long-lasting) stagnation” – exceptionally low inflation, low wage growth, low real interest rates, low business investment, low productivity improvement and low economic growth – applies to our economy… and how cutting interest rates will change this situation. Use the dynamic AD-AS model to analyse the outcome associated with cutting interest rates. In your answer, make sure to discuss the equilibrating process of moving to a new macroeconomic equilibrium output and the link between interest rates and each component of aggregate demand. Make sure to also discuss the impact on the general price level, and specify any assumptions you make.