The country is suffering from severe cost-push inflation.

(a) Draw and correctly label an AD / AS graph showing cost-pushinflation. Identify equilibrium output and price levels as Y₁ and PL₁.

(b) Now identify (and write) onetypeof themonetarypolicy that can fix the inflationand demonstrate this change and the effect on price levels and output of the changes.Identify the new output and price levels as Y₂ and PL₂.

(c) If no other changes are made, the economy will move into long-run equilibrium. On the same graph as in part (a), show the shift to long run equilibrium and label the new output and price levels as Y₂ and PL₂.

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The detailed answer for the above question is provided below a Costpush inflation is depicted on an aggregate demandaggregate supply ADAS graph by a l... View the full answer