1. Explain why it’s possible to temporarily achieve output levels beyond the economy’s long-run potential. Why can’t the high rates of output be sustained? 2. How will an increase in the inflation...

1. Explain why it’s possible to temporarily achieve output levels beyond the economy’s long-run potential. Why can’t the high rates of output be sustained?

2. How will an increase in the inflation rate affect (a) the money rate of interest and (b) the real rate of interest? Explain. Does inflation transfer wealth from lenders to borrowers? Why or why not?