Assume the economy is currently at potential output and the inflation rate is 8%.
Assume the federal funds rate is currently 3%
a. The board of governors meets to set a new target federal funds rate. Would you expect it to be 2% or 4%?
b. How would you expect the Fed to reach the new target?
c. What impact would this have on the price level and real GDP in the SR and LR (use the AD/AS model).