Question: Can you please help me answer this question? Please be as detailed as possible, thanks! Suppose the central bank also knows that there will be

Can you please help me answer this question? Please be as detailed as possible, thanks!

Suppose the central bank also knows that there will be a substantial time lag in the effect of monetary policy. It therefore starts to gradually increase the interest rate and reverse the Quantitative Easing well before the economy reaches the full employment. Use the diagram to indicate the effect of these policies on the economy. What is the risk of doing these policies too late? What is the risk of doing these policies too early?

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