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uppose the President appoints a Federal Reserve System chairman known to have no interest in fighting inflation.
uppose the President appoints a Federal Reserve System chairman known to have no interest in fighting inflation. Apply the aggregate demand and supply model to determine what would happen in the following cases. Explain your reasoning.
a. to equilibrium output and inflation in the short-run
b. to equilibrium output and inflation in the long-run
Now suppose that in addition to the new chairman, the Fed also lowers its responsiveness to inflation in its MP curve (it lowers the value of λ). Explain what happens to
c. equilibrium output and inflation in the short-run; compare the size of the changes in output and inflation to those you obtained in a
d. equilibrium output and inflation in the long-run; compare the size of the changes in output and inflation to those you obtained in b
