The central bank of the country is concerned about the possibility that the country is going to face a high inflation rate, and it adopted a contractionary monetary policy as a result. Discuss how the central bank policy will affect GDP and the interest rate in the short run. Provide a step-by-step analysis to predict what will happen in both the money and the goods market as a result of the CB policy (use the IS-LM model to analyse the case).

Current situation: Possibility of high inflation in the country. Adopted Policy: Contractionary…

Answered: The central bank of the country is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The central bank of the country is concerned about the possibility that the country is going to face a high inflation rate, and it adopted a contractionary monetary policy as a result.

Discuss how the central bank policy will affect GDP and the interest rate in the short run. Provide a step-by-step analysis to predict what will happen in both the money and the goods market as a result of the CB policy (use the IS-LM model to analyse the case).

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