(Medium Run) Labor market equilibrium is determined by the following 2 equations: W = Pe F(u,z) P = (1+ m) W Where: W=nominal wage; Pe =expected price; u=unemployment rate; z=catch-all variables; P=price; m=mark-up. b. By using the IS-LM-PC framework, explain what would happen in the short run, if the central bank decides not to change the policy rate (interest rate)!  c. Compare your answer to point b with the condition where the central bank decides to increase the interest rate in order to stabilize inflation!

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