Refer to the latest monetary policy decision statement by the Governor of the Reserve Bank of Australia (RBA), Mr. Philip Lowe,

https://www.rba.gov.au/media-releases/2022/mr-22-41.html

There is one paragraph stating: "Inflation in Australia is too high, at 6.9 per cent over the year to October. Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role. Returning inflation to target requires a more sustainable balance between demand and supply. "

Using the static aggregate demand and aggregate supply (AD-AS) model, show and explain how the inflationary pressure scenario discussed in the article could be identified.

What kind of remedial monetary policy measure would you recommend for the RBA? Explain the appropriate monetary policy action and illustrate using the static AD-AS model the effect of such policy stance on the long-run equilibrium in the economy.