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Unformatted text preview: 17 Expansionary policy creates inflation as well as increasing output. 18 When near full employment Y, expansionary policy produces high inflation and little growth in output. P Y AS AD 2 AD 1 P 2 P 1 Y 1 Y 2 Y F 19 When far from full employment output, expansionary policy creates little inflation and high growth in output. P Y AS AD 2 AD 1 P 2 P 1 Y 1 Y 2 Y F 21 P Y AD AS 1 P 2 P 1 Y 1 Y 2 AS shifts up: prices rise and output drops. AS 2...
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- Fall '08