Suppose you are on the Board of Governors of the Federal Reserve System of the United States (US) economy and are reviewing the following hypothetical economic data in 2019-2020:
Real GDP per capita growth rate = 3.1% Unemployment rate = 3.2% Inflation rate = 5.3%
a. Determine what phase of the business cycle the US economy is likely to be experiencing in 2019-2020. Provide specific reasons for your answer.
b. Use a well-labelled AD/AS diagram to show the position of this economy in 2019-2020. Explain whether the US government should use expansionary or contractionary monetary policy to move the economy back to the long run, fullemployment GDP equilibrium. Draw the AD curve shift(s) associated with this policy change on your diagram.
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