Suppose the economy is producing above potential GDP and the Federal Reserve implements the appropriate change in monetary policy, but not until after the economy has started to slow down on its own. In this situation there is a real danger that

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When the economy is above potential GDP and starts to slow down, the appropriate response from the Federal Reserve would be to implement a contractionary monetary policy to prevent inflation and overheating. If this policy is applied too late, there's a risk that it could exacerbate the economic slowdown, leading to a larger decrease in GDP than intended.

Suppose the Economy Is Producing Above Potential GDP and the Federal