On the topic of "Stabilization Policies, Monetary Institutions and Strategies" Suppose that it there is an expected increase in the production productivity. Using AE/PC Model, explain the followings with the aid of graphs. a) What will be the impact on current inflation and on output if the central bank does not involve to the market (do nothing)? b) Assume that initially inflation equals to the central bank’s inflation target and an output gap of zero. When the shock occurs, what are the options that the central bank has to influence to the market?

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