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Problem Set 6
Why is it possible to change real economic factors in the short run simply by printing and distributing more money? Explain why a stable 5% inflation rate can be preferable to one that averages 4% but varies between 1–7% regularly.
Suppose the economy is in long-run equilibrium, with real GDP at $16 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases the money supply by 6%.
Suppose the economy is in long-run equilibrium, with real GDP at $16 trillion and the unemployment rate at 5%. Now assume that the central bank increases the money supply by 6%.
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