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Suppose that the economy is in long-run equilibrium in the classical model, with output determined by the availability of inputs, technology, efficiency, etc. However, theequilibrium
Suppose that the economy is in long-run equilibrium in the classical model, with output determined by the availability of inputs, technology, efficiency, etc. However, theequilibrium inflation rate exceeds the government's target inflation rate. Describe theappropriate policy action for the central bank to take in these circumstances and trace through the effects of the policy in terms of the aggregate supply and demand curves.
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