Suppose that a law required the Fed to do everything possible to keep the inflation rate equal
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Suppose that a law required the Fed to do everything possible to keep the inflation rate equal to zero. Using AD and AS curves, illustrate and explain how the Fed would deal with (a) a negative demand shock from a decrease in investment spending and (b) an adverse aggregate supply shock. What would be costs and benefits of such a law?
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a In the case of a negative demand shock the central bank would shift the ...View the full answer
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Related Book For
Macroeconomics Principles and Applications
ISBN: 978-1111822354
6th edition
Authors: Robert E. Hall, Marc Lieberman
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