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2 LA c. On Graph 2 below, illustrate how a monetary policy could be used to reduce Inflation rate. Clearly label the new equilibrium as

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2 LA c. On Graph 2 below, illustrate how a monetary policy could be used to reduce Inflation rate. Clearly label the new equilibrium as (PL, Y,). (2 marks) Graph 2: Inflationary Gap and Monetary Policy Price level AS PLO AD H Yo Real GDP d. According to your answer in Graph 2, what kind of monetary policy has been implemented? Explain the transmission channels of the policy. (3 marks) Page 1I of 17

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