To evaluate the given statement.

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Chapter 14, Problem 3E

To determine

To evaluate the given statement.

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Question 6 If the economy were represented by the following graph, what is the appropriate monetary policy? Price Level LRAS SRAS El P1 AD Real GDP Y1 Yp buy government bonds from commercial banks, thereby lowering interest rates and increasing aggregate demand. Ob sell government bonds to commercial banks, thereby lowering interest rates and increasing aggregate demand buy government bonds from commercial banks, thereby increasing interest rates and decreasing aggregate demand O d) sell government bonds to commerical banks, thereby increasing interest rates and decreasing aggregate demand.

As monetary policymakers become more concernedwith inflation stabilization, the slope of the aggregatedemand curve becomes flatter. How does the resulting change in the slope of the aggregate demand curvehelp stabilize inflation when the economy is hit with atemporary negative supply shock? How does this affectoutput? Use a graph of aggregate demand and supply todemonstrate.