Draw the ad curve shift

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Reference no: EM132401167

Consider the following hypothetical scenario:

Assume that a real GDP per capita growth rate of 2.0%, a natural unemployment rate of 2.7%, and an inflation rate of 3% correspond to the 'bliss point', i.e. the long run, full-employment GDP equilibrium in the United States (US). Suppose you are on the US Board of Governors of the Federal Reserve System and are reviewing the following hypothetical economic data in 2020-2021:

Real GDP per capita growth rate = 3.0%

Unemployment rate = 2.5%

Inflation rate = 5.5%

Use a well-labelled AD/AS diagram to show the position of this economy in 2020-2021. Explain how an effective use of contractionary monetary policy can move the US economy back to the long run, full-employment GDP equilibrium. Draw the AD curve shift(s) associated with this policy change on your diagram.

Reference no: EM132401167

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