Aggregabe price LRAS level SRAS P AD, Y Real GDP The above diagram shows an economy in macroeconomic equilibrium. Potential GDP is shown as Yp (also labelled as the LRAS curve). Real GDP is labelled as Y1. Use this diagram to answer Q 15 belowUsing the above diagram, ll in the missing words to explain the use Monetary Policy. 0 The above diagram shows an economy in which there is afan 6 gap because real GDP is potential GDP. government securities fromlto the 0 the cash rate by 0 To return the economy to potential GDP using monetary policy, the should commercial banks and the public. achieving the desired effect on the cash rate. Banks wou d change their lending behaviour 0 In the Market for Bank Reserves, Reserve Supply would shift to the which in turn affects nominal interest rates. 0 curve to shift to the 0 and return the economy to potential GDP. The change in the cost of borrowing would cause the