Carl Bildt is puzzled – he should read an economics textbook

Former Swedish Prime Minister Carl Bilde – who normally is a clever man, but not an economist – is puzzled:

I have an answer from the economic textbook for Carl Bildt. We are at point B now.

We are now in the process – at least in the US – of tigthening monetary policy so pushing the aggregate demand curve back leftwards and at the same time labour market inflation expectations are shifting upwards which will shift the short-term aggregate supply curve back towards the long-run aggregate supply curve and we will end up with a price level somewhere between A and C and a production (and unemployment) at the structural long-term level. Hence, higher unemployment than now.

It’s really, really simple.

PS the story is exactly the same for the euro zone and for the Swedish economy.

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