The rising food and energy prices in the US (and other countries) alluded to in previous questions has led to the biggest increase in inflation since the 1980s. The following questions relate to the macroeconomic causes and consequences of this for policymakers.

Using an AD-AS analysis, illustrate and explain the effect of these rising prices on (i) inflation, and (ii) economic growth.

If you were a policy maker in the US at the moment, what economic policies would you suggest to help overcome these issues for the US economy? Specifically:

(a) What type of policy or policies would you use?

(b) How do you implement these policies (i.e. explain the mechanisms through which they affect AD and/or AS)?

(c) Illustrate on an AD-AS diagram the effect you hope these policies would have on inflation and GDP for the US economy if implemented.