Let the economy be at potential output. Then we see a rise in GDP, low unemployment, and

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Question:

Let the economy be at potential output. Then we see a rise in GDP, low unemployment, and high inflation. Note what type of shock will cause these symptoms and show it on the aggregate demand and supply model. Emphasize as well the short run and long run for the shock. State the goals of the fed and what they will do to stabilize the economy. Further emphasize on how the fed will respond to stable prices and maximum employment for there response. Also, explain what would happen if either a fiscal policy or a monetary policy will respond to these shocks. Please explain both process and explain how it is put back into our graph.