The dynamic aggregate demand curve is given by: =Y -π - &₁ The dynamic aggregate supply curve is given by (inflation expectations are backward looking): π₁ = π₁_, + 2(Y, − Ỹ)+v₁ a) The economy was in equilibrium. The rate of inflation was equal to 10%. The central bank reduces inflation target to 2%. Calculate output loss (fall in output) arising from this disinflation policy during the first year of its implementation. Calculate the rate of inflation
The dynamic aggregate demand curve is given by: =Y -π - &₁ The dynamic aggregate supply curve is given by (inflation expectations are backward looking): π₁ = π₁_, + 2(Y, − Ỹ)+v₁ a) The economy was in equilibrium. The rate of inflation was equal to 10%. The central bank reduces inflation target to 2%. Calculate output loss (fall in output) arising from this disinflation policy during the first year of its implementation. Calculate the rate of inflation
Chapter16: Expectations Theory And The Economy
Section: Chapter Questions
Problem 15QP
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