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Reconciling the Models

This document explores the interrelationship between various economic models related to interest rates, including the Liquidity Preference Model, the AD-AS Model, and the Loanable Funds Model. It discusses how each model addresses the dynamics of the economy, particularly interest rates and liquidity preferences. By analyzing aggregate demand and supply, price levels, and real GDP, this study aims to provide a clearer understanding of monetary policy implications and their effects on the overall economic environment.

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Reconciling the Models

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  1. Reconciling the Models Liquidity Preference Model of the Interest Rate AD-AS Model Loanable Funds Model of the Interest Rate LRAS SRAS2 MS1 MS2 SRAS1 S1 Agg. Price Level (PL) Interest Rate (r) Interest Rate (r) PL3 S2 PL2 r r PL1 r1 MD2 r1 MD1 AD2 D AD1 M1 M2 Q1 Q2 Y1 Y2 Quantity of money Quantity of loanable funds Real GDP (Y)

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