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Question: Suppose the Fed fully accommodate a price shock, shifting out the aggregate demand curve until ag…
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Suppose the Fed fully
accommodate a price shock, shifting out the aggregate demand curve
until aggregate demand equals Y* at the higher price level. The
behavior of income and the price level are given by the following
graphs

Question: Suppose the Fed fullyaccommodate a price shock, shifting out the aggregate demand curveuntil ag...

                                     
A

Assuming that aggregate
demand is given by the usual relationship, which of the following
equations must describe the adjustment of prices?

                                     
  B

Assume now that there is the
same policy response but prices are governed by the other equation.
Describe the path followed by output and prices

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