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For instance, the government will cut the interest rates, households and firms will borrow as much as money as they can. Hence, consumption and investment will increase; this will boost Australian economy, the economy will shift back to potential output and unemployment will be reduced. Accordingly, if the government wishes to contain inflation, it might I adopt the contractionary monetary policy. This will impose an adverse effect to the Australian economy, which will restrain the aggregate demand; however this might cause an even large contractionary gap with unemployment. Therefore, a more suitable approach will be adopting fiscal policy...
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