Show the short and long run effects of a monetary expansion

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Reference no: EM13157810

Demand Pull Inflation Suppose the central bank wants to decrease unemployment, but the economy is already at the natural rate.

a. Show the short and long run eects of a monetary expansion in this situation in the AD/AS model. You can omit the labor market and production function graphs and you may assume sticky prices for SRAS.

b. As you can see from above (hint), in the long run output stays the same and we are left with higher prices. What happens if the central banks tries this strategy over and over again?

Reference no: EM13157810

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