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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Macroeconomics Principles and Applications

ISBN: 978-1111822354

6th edition

Authors: Robert E. Hall, Marc Lieberman

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