How the federal reserve would carry out this policy

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The Federal Reserve can use expansionary or contractionary policy to shift the aggregate demand curve. Use an AD-AS graph to show how monetary policy should be used to return output to potential GDP when:

a. the aggregate demand curve intersects the short-run aggregate supply curve to the left of potential GDP. Briefly explain how the Federal Reserve would carry out this policy.

b. the aggregate demand curve intersects the short-run aggregate supply curve to the right of potential GDP. Briefly explain how the Federal Reserve would carry out this policy.

Reference no: EM131302762

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