Aggregate supply and demand
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"The idea of the Fed having to choose between hawk and dove policies after an adverse supply shock is plain silly. All the Fed has to do is shift the curve back to its original position, which would prevent both recession and inflation. Do you agree? Why or why not?
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When we talk of a supply shock, like an oil shortage for example, there is not
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When we talk of a supply shock, like an oil shortage for example, there is not much the Fed can do except drill for oil. The Fed is not all-powerful and cannot dial in exactly the right position for the economy's 'curve' to be in. First the economy is a moving target. The Fed is always reacting to economic news. They do not make the news.
The Fed will ...
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