Suppose the following table illustrates the values of real and potential GDP and the price level, if the Reserve Bank of Australia (RBA)does not change their current monetary policy to be more contractionary or expansionary.
Suppose that the RBA uses an appropriate policy and is successful in keeping real GDP at potential in 2017. Discuss the type of monetary policy that the RBA should adopt, explaining the effect of the policy on real GDP, the price level and employment. Use a dynamic aggregate demand and supply model to illustrate your answer.
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