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Can I get an answer with explanations? 3) Suppose the economy is initially at a long-run equilibrium. The Fed then increases the money supply. a.

Can I get an answer with explanations?

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3) Suppose the economy is initially at a long-run equilibrium. The Fed then increases the money supply. a. Assuming any resulting inflation to be unexpected, describe any changes in GDP, unemployment, and inflation that are caused by the monetary expansion. Explain your conclusions using three diagrams: one for the IS- LM model, one for the AD-AS model, and one for the Phillips curve. b. Assuming instead that any resulting inflation is expected, describe any changes in GDP, unemployment, and inflation that are caused by the monetary expansion. Again, explain your conclusions using three diagrams: one for the IS-LM model, one for the AD-AS model, and one for the Phillips curve. a) If the central bank commits to targeting zero inflation, what is expected inflation? If the central bank follows through, what is the unemployment rate? What is the loss from inflation and unemployment? b) Based on your answers to parts (a) and (b), which inflation target would you recommend? Why? c) Suppose the central bank chooses to target zero inflation, and expected inflation is zero. Suddenly, however, the central bank surprises people with 5 percent inflation. What is unemployment in this period of unexpected inflation? What is the loss from inflation and unemployment? d) What problem does your answer to part (d) illustrate

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