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Suppose the Federal Reserve announced that it would pursue contractionary monetary policy to reduce the inflation rate. Choose one of the following conditions and describe whether it would make the ensuing recession more or less severe? Explain.
a. Wage contracts have short durations.
b. There is little confidence in the Fed's determination to reduce inflation.
c. Expectations of inflation adjust quickly to actual inflation.
(Use real world examples, ex: Article/statistics)
Because of a recession, the inflation rate expected for the coming year is only 3%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 3%.
Using words in a narrative, please describe and explain how both the equilibrium price and quantity will change when:
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