 Bismillahir Rahmanir Raheem, our next topic is causes of inflationary monetary policy. Now the first question is that how can monetary policy itself be inflationary? How can monetary policy also create inflation itself when its prime concern is to control inflation? So yes, it is possible and when is it possible when the central bank should achieve such objectives or monetary policy should achieve such objectives which cannot be achieved? So it is necessary to focus on what monetary policy can do and what it cannot do. If you have an idea of your lectures where we have discussed the model of demand aggregate supply again and again, then you must have become very clear that we always used to see that in the long run economic activity returns to its potential level, unemployment rate returns to its natural rate but inflation can be permanently up or down depending on the shop. This means that in the long run the real side variables which have output, employment or unemployment they are independent of monetary policy. They are independent of inflation rate. This means that in the long run monetary policy can choose any level of inflation but real variables can not choose any level of monetary policy. This means that monetary policy has its powers but its limitations. Its power is that it can choose inflation rate. Its limitation is that it cannot determine the level of real variable i.e. employment, unemployment, output especially in the long run and in the short run. Now let's take an example that choosing inflation target in the long run. For example, our economy initially is at point 1 and point 1 means that inflation is at its target i.e. INFT-1. Now what does central bank do? It makes inflationary monetary policy which means it loses its policy. To lose its policy means that the interest rate, the autonomous part of the interest rate equation means that it decreases the exogenous interest rate. This means that monetary policy becomes expansionary. When it does this, the aggregate demand curve shifts to the right side. When aggregate demand curve shifts to the right side, the output gap becomes positive. When output gap becomes positive, the same self-correction mechanism channel will run here and the expected inflation rate will increase and the aggregate supply curve will shift to the left side. And the final equilibrium will be at point 3 which is called inflation target 3 in the vertical axis. This means that if central bank wants, then it can do inflation target from i.N.F.1 to i.N.F.3. This can happen. But the economic activity in it was at point 1 and point 3. Because central bank cannot choose it in the long run. Now the question is that when it is clear that can central bank do this or not, so now we see when inflationary monetary policy can be of central bank. First of all remember that when central bank's prime concern is inflation control, then when inflation will be created from its own policy, when central bank's focus will be removed from inflation and move towards any other variable, like the output of the muscle. For example, take any other variable like exchange rate or take any other variable like employment, take any other variable like unemployment. So if the focus will be removed from inflation and move towards any other variable, then while achieving that target, the target of inflation may be missed and because of its actions and policies of central bank, inflation will be created in the economy. We analyze this in different situations. In the first situation we take that there is low output due to cost-push inflation. And the policy maker means that the monetary authority or central bank wants that when the cost-push inflation has less output, then unemployment increases and unemployment decreases. So if instead of central bank inflation, it starts targeting employment, then what will happen? This diagram is a bit complex, but if you understand it, then it won't be that difficult. First of all, AD1 and AS1 is an equilibrium where the long-run equilibrium is also at 0.1. Now if the cost-push inflation has come, then it means that inflationary shock has come or negative supply shock has come because of which aggregate supply has become AS2. When it has become AS2, then its loss is that inflation rate has increased when the output level has gone down from the potential level and people have been implied. Now if the emphasis of central bank is on employment, instead of inflation, then what will it do? It will try to relax its policy. When it relaxes its policy, then aggregate demand will shift to AD2. This means that when it shifts to that side, then the economy will return to 0.2 and the long-run equilibrium will return to 0.2 which means that the inflation rate has increased but economic activity will return to its level. But if this spiral continues, then AS2, then AS3, then AD1, AD2, then ultimately what will happen? If you look at 0.4, then economic activity has returned to its potential level but inflation's target has missed which was INF1, inflation has gone to INF4. This means that if the cost is pushed to inflation and the central bank is trying to achieve the real variable target, then inflation comes into the economy. This is a possibility. What is the second possibility? Central bank's objective is to achieve the real variable objective but we are saying that the economy is already at its potential level. And unemployment is at its natural rate. This means that no shock has come. No shock has come but the intention of the central bank is that unemployment should be less than the natural rate or the output should be more than the potential level. If the central bank loses its policy to increase the real variable then the aggregate demand will shift to the right side which means that the equilibrium will shift from 0.1 to 0.2 prime. But since the output gap is positive then the self-correction mechanism which we have read many times will increase inflationary expectations and the aggregate supply will shift to the left side. Then the central bank will shift the aggregate demand so that the output is more and if the output of the central bank wants to maintain it permanently at the level of more than the potential level then it will have to make the policy expansionary again and again whose net result will be that inflation will increase in the long run. This means that due to the actions of the central bank sometimes inflation can be created. What is the net result? There is a pain of such policy but without gain. What does it mean? That inflation will increase in the long run but there is no gain because ultimately economic activity comes back to its potential level or natural rate. Thank you.