+1 862 207 3288 1. Show that if the economy’s aggregate supply curve is vertical, fluctuations in the growth of aggregate demand produce only fluctuations in inflation with no effect on output.
2. Long-term government bonds now pay approximately 4 percent nominal interest. Would you prefer to trade yours in for an indexed bond that paid a 3 percent real rate of interest? What if the real interest rate offered were 2 percent? What if it were 1 percent? What do your answers to these questions reveal about your personal attitudes toward inflation?
