Briefly explain whether you agree with the
following statement: “The supply
shock inflation parameter,
s, must always be positive
because supply shocks always increase production
costs.”
In a March 2012 interview on Bloomberg
television’s “In The Loop,” former Federal
Reserve Governor Randall Kroszner described
inflation expectations in the United States as
“well anchored.” Expected inflation is well
anchored when it is stable and households and
firms expect the Fed will keep the actual inflation
rate close to the expected inflation rate.
What would happen to the
AS
curve if inflation
expectations were not well anchored?