a) What is the economic justification for the sticky inflation assumption?
b) How does this assumption enable the action of the Federal Reserve?
c) Why is Short Run Output measured in percentage terms as opposed to absolute term?
d) Explain why we can think of full employment and potential output as expressing the same thing.
e) Suppose you are in charge of the Federal Reserve that has a goal of maintaining low inflation and to keep output at potential. Are these appropriate goals for Monetary Policy? Explain.