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Q2. Show an economy facing an inflationary gap on the AD-AS diagram. a)To eliminate the gap should the central bank use expansionary or contractionary monetary

Q2. Show an economy facing an inflationary gap on the AD-AS diagram.

a)To eliminate the gap should the central bank use expansionary or contractionary monetary policy?

b)How will interest rate, Investment spending, consumer spending, real GDP and aggregate P level change as monetary policy closes this gap?

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