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Figure: Monetary Policy II
-(Figure: Monetary Policy II) Refer to Figure: Monetary Policy II. If the short-run equilibrium is at Y₂, appropriate central bank policy is:

Question

Use the following to answer questions:
Figure: Monetary Policy II

-(Figure: Monetary Policy II) Refer to Figure: Monetary Policy II. If the short-run equilibrium is at Y₂, appropriate central bank policy is:

Quizplus · Accepted Answer

The short-run equilibrium is to the right of the long-run equilibrium, indicating that the economy is experiencing a level of output and employment that is above its potential. This situation is often associated with inflationary pressures, and appropriate central bank policy would be contractionary to shift the economy back towards its long-run equilibrium. Option A is the correct answer.

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