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The below diagram illustrates the equilibrium inflation rate

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The below diagram illustrates the equilibrium inflation rate. In this diagram, show how a permanent decrease in export demand would affect the equilibrium inflation rate, if the central bank did not change its monetary policy. If the central bank did react to this change in the equilibrium rate to defend its inflation target, what change in the interest rate setting and money supply growth would you observe? First demonstrate the effect of the decrease in export demand in the graph (a) on the left; this change will automatically be made to the graph (b) on the right. Then demonstrate the subsequent monetary policy effect on the graph to the right. Select which curve you want to move from the drop down menu at the top of each graph to move that item. Note that if you go back and change the graph (a) again, you must also re-enter your change on the graph (b). Graph (a) Graph (b) Aggregate Demand Aggregate Demand AD AD 8 6 6 Inflation AS AS 2 2 1020 80 90 10 20 80 40.50 65.70 Real GDP 90 Reset Reset Real GDP