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On June 5, 2003 the European Central Bank acted to decrease the short-term interest rate in Europe by half a percentage point, to 2 percent. The bank’s president at the time, Willem Duisenberg, suggested that, in the future, the bank could reduce rates further. The rate cut was made because European countries were growing very slowly or were in recession. What effect did the bank hope the action would have on the economy? Be specific. What was the hoped-for result on C, I, and Y?

On June 5, 2003 the European Central Bank acted to decrease the short-term interest ratein Europe by half a percentage point, to 2 percent. The bank’s president at the time,Willem Duisenberg,…