How change in monetary policy will affect the ad curve

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Suppose the economy is initially in long-run equilibrium and the Fed adopts a looser monetary policy and raises its long-run target for the inflation rate.

A. Explain how this change in monetary policy will affect the AD curve.

B. Use your result for part a along with an AD-AS diagram to illustrate and explain what will happen to output and inflation in both the short run and the long run.

Reference no: EM132601342

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