Economic life has become more expensive of late. The costs of living in Australia have gone up dramatically over the past couple of years owing in part to the accumulated effect of past high inflation. Yet, it is difficult for policymakers to alleviate cost-of-living pressures alongside high interest rates, while inflation remains sticky.

Read the following articles related to part 1a and part 1b, respectively:

For 1a, 1. Verrender, Ian (2024) 'Why further interest rate hikes by the Reserve Bank won't fix Australia's inflation problem', ABC News, May 7th, available: https://www.abc.net.au/news/2024-05-07/interest-rate-hikes-wont-fix-our-inflation-problem/103809160 2. RBA (2024) Statement on Monetary Policy - May 2024, available: https://www.rba.gov.au/publications/smp/2024/may/overview.html 3. Martin, Peter (2024) 'If the RBA's right, interest rates may not fall for another year. Here's why - and what it means for next week's budget',

The Conversation, May 7th, available: https://theconversation.com/if-the-rbas-right-interest-rates-may-not-fall-for-anotheryear-heres-why-and-what-it-means-for-next-weeks-budget-229376 a)

Consider the stance of monetary policy to the recent positive shock and assume the RBA's forecasts over the next 12 or so months are accurate [see source 2]. Use the multiplier AD model and Phillips curve diagram to illustrate and explain in detail how the aggregate demand function in the Australian economy is expected to shift if the RBA's goal is to tame