Inflation decreased by only about 1% during the Great Recession of 2008-09 even though real GDP dropped by 4% - more than during any other recession since the World War 2. According to the AS-AD framework, this implies that The sharp increase in oil prices that occurred prior to the Great Recession had a negligible effect on inflation. Which of the following would be true about the Great recession?
a. The AS curve must be quite steep Inflation expectations remained stable during the Great Recession.
b. The AD curve much not have shifted very much during the Great Recession
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