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Question

Suppose the housing prices fall in Australia. Let's assume that output starts at its natural level. 

  1. What happens to the economy (output, price and interest rate) in the short run? Explain your answer using IS-LM and AS-AD graphs.
  2. What happens to output, price and the interest rate in the medium run? Explain your answers using graphs.


There are no missing data, graph or links.

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