In Chapter 29 we build on our knowledge of the long, run Phillips Curve and the natural rate hypothesis outlined in Chapter 28 to analyse the effect of economic policy on macroeconomic variables such as the level of output and inflation. We shall also draw on our knowledge of the quantity theory of money as explained in Chapter 28 and we make use of the aggregate demand and aggregate supply framework developed in Chapter 22. We will also refer to liquidity preference theory discussed in Chapter 28.
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