Given that the economy can correct itself and return to potential GDP, why would the Federal Reserve

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Given that the economy can correct itself and return to potential GDP, why would the Federal Reserve pursue expansionary monetary policy following a negative aggregate demand shock? How could the Fed pursuing an expansionary monetary policy be preferable to the economy correcting itself? Is it possible that an expansionary monetary policy could hurt the economy, given the lags in the impact of monetary policy actions? Briefly explain.

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Money, Banking, and the Financial System

ISBN: 978-0134524061

3rd edition

Authors: R. Glenn Hubbard, Anthony Patrick O'Brien

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