You learned in Chapter 11 that if there is an inflationary gap in the short run, then

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You learned in Chapter 11 that if there is an inflationary gap in the short run, then in the long run a new equilibrium arises when input prices and expectations adjust upward, causing the aggregate supply curve to shift upward and to the left and pushing equilibrium real GDP back to its long-run potential value. In this chapter, however, you learned that the Federal Reserve can eliminate an inflationary gap in the short run by undertaking a policy action that reduces aggregate demand.
a. Propose one monetary policy action that could eliminate an inflationary gap in the short run.
b. In what way might society gain if the Fed implements the policy you have proposed instead of simply permitting long-run adjustments to take place?
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Economics Today

ISBN: 978-0132554619

16th edition

Authors: Roger LeRoy Miller

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