The Federal Reserve can use expansionary/contractionary policy to shift the AD curve. Use the AD–AS framework to show how monetary policy should be used to return output to potential GDP when: (i) the aggregate demand curve intersects the short-run aggregate supply curve to the left of potential GDP; and (ii) the aggregate demand curve intersects the short-run aggregate supply curve to the right of potential GDP.
The Federal Reserve can use expansionary/contractionary policy to shift the AD curve. Use the AD–AS framework to show how monetary policy should be used to return output to potential GDP when: (i) the aggregate demand curve intersects the short-run aggregate supply curve to the left of potential GDP; and (ii) the aggregate demand curve intersects the short-run aggregate supply curve to the right of potential GDP.
Chapter16: Monetary Policy
Section16.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model
Problem 3SQ
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- The Federal Reserve can use expansionary/contractionary policy to shift the AD curve. Use the AD–AS framework to show how
monetary policy should be used to return output to potentialGDP when: (i) the aggregate demand curve intersects the short-runaggregate supply curve to the left of potential GDP; and (ii) the aggregate demand curve intersects the short-run aggregate supply curve to the right of potential GDP.
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