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Long questions


Question 1

(a) Explain why the value of the multiplier may vary over time and from country to country.

(b) Explain how the multiplier and the accelerator principles help understand the dynamics of the business or trade cycle.

Question 2

(a) Using aggregate demand and supply diagrams to aid your analysis, explain the difference between an inflationary and deflationary gap.

(b) Evaluate the policy options open to a government that wants to close a deflationary gap and reduce unemployment.