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1. In 1998, the U.S. economy was in equilibrium at potential GDP with an inflation rate of 4%. In 1999, there was a substantial increase
1. In 1998, the U.S. economy was in equilibrium at potential GDP with an inflation rate of 4%. In 1999, there was a substantial increase in investment in anticipation of Y2K. In 2000, the Federal Reserve engaged in a contractionary monetary policy of exactly the size necessary to completely offset the increased investment in 1999. Also in 2000, autonomous investment fell, reversing all of its 1999 increase. a. Based only on this information, use a DAD - SAS model diagram to clearly show the effects of these events on equilibrium output and the inflation rate and during 1999, 2000, and 2001. Also be sure to clearly identify where the economy and inflation settle when the adjustment process is complete. b. Provide a brief economic explanation for what happened to economic output and inflation because of the events described above. Also be sure to discuss where economic output and inflation finally settle at the end of the adjustment process
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