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In certain circumstances, monetary easing like this could be inflationary, but in reality inflation is unlikely to occur given the large output gap in Europe at present represented above as the distance between Y1 and the dotted line, signifying the full employment level of output.
The previous equilibrium b shifts to the new equilibrium c. Nothing better than spreading wisdom! Because government increased interest rate, money leaked out of economy, slowing down money circulation and thus deflating inflation.
Copying sentences or parts of this piece of work will result in failing your IB Diploma programme because of plagiarism! Any increase in aggregate demand will lead to economic growth an increase in outputbut little or no inflation due to the excess capacity of unemployed laborland and capital resources in the European economy today.
Keep up the great work! With this government eased annual inflation rate by 0. Firms respond to growing demand by producing more. They are easy to follow and digest.