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Shifts to aggregate demand -- reflected in rightward or leftward shifts to the IS curve -- will have impacts on the output gap, the real interest rate, and the inflation rate.
Discretionary monetary tightening or loosening -- as reflected in rightward or leftward shifts to the RT curve -- will have impacts on the output gap, the real interest rate, and the inflation rate.
Accomodative monetary policy -- a rightward shift of both the IS and RT curves means higher output and lower interest rates in the short run, but potentially higher inflation in the long run -- by eroding central bank credibility.
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Alternative illustrative scenarios in the IS/RT/PC model.
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