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Suppose it is mid-2007 and the stock market has been growing rapidly for the past 5...

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Economics

Suppose it is mid-2007 and the stock market has been growingrapidly for the past 5 years. Some economists argue that the stockmarket has become “overvalued” and thus a “crash” is imminent

  1. How does a rising stock market affect Aggregate Demand? Showthis in an AD/AS diagram.

  2. For a central bank that is trying to keep real GDP close toPotential explain what challenges are posed by a rapidly risingstock market

  3. Suppose the stock market crashes how does this affect aggregatedemand? Show this in an AD/AS diagram.

Answer & Explanation Solved by verified expert
4.1 Ratings (513 Votes)
Let the economy is initially at the long run equilibrium levelat point E1 at the potential level of output in the economy Arising stock market will shift the    See Answer
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