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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Suppose the Federal Reserve announced that it would pursue contractionary monetary policy to reduce the inflation rate. Would the following conditions 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.

Sub part (a):

To determine

The impact of contradictory monitory policy in different economic situations.

Explanation

If the wage contracts have a short duration, the recession will be less severe. This is because the wage contract can be used more rapidly to reproduce the lower inflation rate...

Sub part (b):

To determine

The impact of contradictory monitory policy in different economic situations.

Sub part (c):

To determine

The impact of contradictory monitory policy in different economic situations.

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