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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.

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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
BuyFind

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

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Chapter
Section
Chapter 22, Problem 7PA
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.

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