Problem 4 Five years after being appointed as CEO of Duck Bank, it gets acquired by a large financial holding company and you transition into an advisory role on the holding company's board. This opens your schedule up to monitor and forecast developments in the US economy. Now it's time for you to show off your Econ chops to the public through detailed analyses of current events... Part (a) (5 pts.) You notice that over the course of the past few months, there appears to have been an upward trend in professional forecasters' expectations of the inflation rate. You apply your econometrics skills to show that there does in fact exist a statistically significant upward trend that is likely to persist. You hypothesize that this implies that the expected inflation rate is likely to increase in the future. Explain what effects such a change may have on the equilibrium of the aggregate economy. What types of monetary policy adjustments you would recommend, and why. Hint: Refer to the Aggregate expenditure curve graph and the Phillips curve graph.

What monetary policy adjustment should I research? How the inflation increase affect the equilibrium of the aggregate economy?