4. Consider the following version of the Barro-Gordon model. Let the Central Bank's (CB) welfare function be W = Y - 0n² with 8>1. The CB maximizes this social welfare function subject to the Phillips curve constraint: Y = Y* + λ(-²) where 0

4. Consider the following version of the Barro-Gordon model. Let the Central Bank's (CB) welfare function be W = Y - 0n² with 8>1. The CB maximizes this social welfare function subject to the Phillips curve constraint: Y = Y* + λ(-²) where 0

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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please sir do it correctly will upvote I stuck please help me

4. Consider the following version of the Barro-Gordon model. Let the Central Bank's (CB) welfare function
be W = Y – On? with 0>1. The CB maximizes this social welfare function subject to the Phillips curve
constraint: Y = Y* +2(T-n) where 0<A<1. The CB chooses the optimal inflation given the private sector's
expectation (e) about inflation. Assume that the relative PPP condition holds.
Derive the CB's welfare maximizing inflation rate and show how this depends on the
expected rate of inflation (T)? ng o1
(i)

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