Problem
In the Spring of 2022, several economic analysts warned that the Russia/Ukraine crisis would increase the risks of stagflation in Europe and in the U.S. Based on the AD-AS framework discussed in class:
I. Explain what would cause stagflation, and what are the implications of stagflation for business and policy makers. Briefly explain how the economy would adjust back to potential GDP in the long run.
II. Compare the Spring 2022 economic environment with another historical period of stagflation in the U.S.
III. Contrast monetary policy between these two periods, and discuss the current trade-off faced by the FED when they meet again in December 2022 (Federal Open Market Committee Meeting. December 13-14, 2022).
IV. What are some indicators business managers may use to assess / forecast the business cycle, in particular an upcoming recession?