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Please explain it step by step! Suppose that production is on the natural level. Now there is an increase in the price level because of
Please explain it step by step!
Suppose that production is on the natural level. Now there is an increase in the price level because of an increase in the value added tax1.
(a) What happens to production in the short run if the central bank keeps the money supply constant?
(b) What do you think that the central bank should do in this situation?
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