(Module 31) The economy of Dodgelandia is experiencing an inflationary gap. a. How could the Central Bank use monetary policy to return the economy to full employment? b. Use a correctly labeled graph of the money market to show how this monetary policy would impact the equilibrium interest rate. c. Describe how the monetary policy in part (a) would affect the AD/AS graph, the aggregate price level and real GDP in Dodgelandia.
(Module 31) The economy of Dodgelandia is experiencing an inflationary gap. a. How could the Central Bank use monetary policy to return the economy to full employment? b. Use a correctly labeled graph of the money market to show how this monetary policy would impact the equilibrium interest rate. c. Describe how the monetary policy in part (a) would affect the AD/AS graph, the aggregate price level and real GDP in Dodgelandia.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Step 1: Define Inflationary Gap
VIEWStep 2: Explain the use of monetary policy to return the economy to full employment.
VIEWStep 3: Construct a diagram that shows how monetary policy will impact the equilibrium interest rate
VIEWStep 4: Explain how monetary policy would affect the AD/AS curve, the aggregate price level and real GDP
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