A country is experiencing unemployment of 4% and inflation of 10%. The central bank uses contractionary monetary
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A country is experiencing unemployment of 4% and inflation of 10%. The central bank uses contractionary monetary policy to reduce inflation. Explain how this might happen, what policy might be used, how it would affect the macroeconomy and finally what would be the result on the Phillips curve (assume new levels of inflation and unemployment after the policy). Show both before and after effects on the Phillips curve. Explain everything in detail.
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