According to an article in the Wall Street Journal, the Reserve Bank of India lowered its key policy interest rate in 2015, "citing weakness in parts of the economy as well as favorable inflation figures." The article notes that the central bank lists constraints to further interest rate cuts, including the "risk that inflation could flare again."

a. Use the dynamic aggregate demand and aggregate supply model to show where the Reserve Bank of India expected real GDP to be in 2015 without the interest rate cut, and indicate what the central bank is trying to achieve with the interest rate cut. Assume, for simplicity, that real GDP in India in 2014 equaled potential GDP.

b. Is there a connection between India experiencing slow growth in output at the same time that it experienced a lower inflation rate? Briefly explain.