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5. Consider the following alternative scenarios for the country of Hibernia. Scenario A - Hibernia's central bank carries out a monetary policy that delivers
5. Consider the following alternative scenarios for the country of Hibernia. Scenario A - Hibernia's central bank carries out a monetary policy that delivers a stable 2 percent inflation rate per year, on average, over twenty years. Scenario B - Hibernia's central bank carries out a monetary policy that delivers highly variable 10 percent inflation rate per year, on average, over twenty years. Assume that Hibernia's economy grows over time and consider the long-term impacts on the economy over time. Use the AD-AS graphical analysis, to illustrate the two scenarios. Hint consider the discussion on the costs of inflation earlier in the class - how can you incorporate this into your analysis?
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