Answer Happy

Suppose Thailand has settled into a sustained 10% inflation rate caused by a high rate of money growth that shifts the aggregate demand curve so that it moves up by 10% every year. If this inflation has been built into wage and price contracts, the short run aggregate supply curve shifts and rises at the same rate. Now suppose that the Bank of Thailand decides that inflation must be stopped. The goals are to lower inflation and unemployment. The bank of Thailand stops the high rate of money growth through the open market operation so that the aggregate demand curve will not rise. The policy of halting money could be costly if it leads to a fall in output. (20 points) a) If the traditional model's view (SRAS with adaptive expectation) of the world is correct, will the plan work? Draw the graph and explain (4) points) b) If the new classical view (SRAS with rational expectation) of the world is correct, will the plan work? Draw the graph and explain (8 points) c) If the Keynesian view (SRAS with Rational expectation plus price and wage rigidity) of the world is correct, will the plan work? Draw the graph and explain (8 points)