Suppose the central bank is using monetary policy in an attempt to hold real GDP permanently above potential GDP.With this policy decision,

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If the central bank is using monetary policy to hold real GDP permanently above potential GDP, it will eventually lead to an increase in aggregate demand (AD) beyond the economy's capacity, causing inflation to accelerate over time. This is because the economy's potential output is limited by its available resources, and if demand exceeds this limit, prices will rise as people compete for those resources. Eventually, inflation will become a problem, which the central bank may find difficult to control without reducing AD, possibly leading to a recession.

Suppose the Central Bank Is Using Monetary Policy in an Attempt