1. Given your findings about the price level and real GDP, consider possible mon
ID: 1177091 • Letter: 1
Question
1. Given your findings about the price level and real GDP, consider possible monetary responses by the Fed. What would happen if the Fed targeted lower interest rates? Higher interest rates?
2. In this news analysis, you explored how an energy price shock affects aggregate supply. The article mentions that high energy prices might affect consumer spending as well. If higher gasoline prices lead to expectations of even higher prices in the future, consumers may cut back on spending today in order to absorb price hikes in the future. How would this affect aggregate demand? How would this change the predictions of the aggregate demand and aggregate supply model?
Explanation / Answer
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