Describe how active policy would respond

Reference no: EM133438932

Questions:

a. Describe how active (monetary) policy would respond (if at all) to stabilize inflation in response to the shock in pail (1.c). What is the likely effect of such policy response (if any) on output stability? (Hint: You can use the AD-AS model and then describe the effect of the shock, the policy response, and its effect on output and inflation with words).

b. Describe how would active (monetary) policy would respond (if at all) to stabilize economic activity in response to the shock in part (1.d). What is the likely effect of such policy response (if any) on price stability? (Hint: You can use the AD-AS model and then describe the effect of the shock, the policy response, and its effect on output and inflation with words).

Reference no: EM133438932

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