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This question is for 10 marks. Suppose an industrial nation, which produces at its long-run equilibrium level of income, experiences a supply shock causing stagflation.

This question is for 10 marks.

Suppose an industrial nation, which produces at its long-run equilibrium level of income, experiences a supply shock causing stagflation. Suppose the government is too impatient to wait for prices to fall but rather uses expansionary monetary policy to speed up the recovery of the economy. Explain the result of this with reference to a graph using aggregate demand and supply curves. NO NEED TO DRAW GRAPH

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