Consider the following AS-AD model with price-setting monetary policy: Y P = (1 + m) P F(1 1, 2) L' Y = Y(i, G, T) iin + a(PPT) Assume that the economy starts at the natural level of output. Now, the fiscal government decides to reduce the budget deficit by changing the income tax level. a. Show what happens to output and the price level in the short-run. lake sure your answer includes an appropriately labelled graph. (10 points) b. What will happen in the medium-run. Which two options are available to the central bank when the economy moves towards a medium-run equilibrium? Make sure your answer include an appropriately labelled graph for each scenario. (20 points) c. In what sense is money neutral? Why is monetary policy useful if money is neutral? In your opinion, should monetary policy be used as stabilisation policy. (10 points)