Suppose policymakers announce their intentions to lower the inflation rate and adopt policy changes to slow nominal GDP growth. Describe, in terms of the SP model, the effects on the economy’s output ratio, unemployment rate, and inflation rate under each of the following cases.
(a) The public finds this announcement credible, and policymakers stick to their announced policies.
(b) The public finds this announcement credible, but policymakers abandon their announced policies and leave the growth rate of nominal GDP unchanged.
(c) The public does not find this announcement credible, but policymakers do stick to the announced policies.
(d) The public does not find this announcement credible, and policymakers abandon their announced policies and do not lower the growth rate of nominal GDP.