5. Suppose that we have a partial sticky price New Keynesian model. Suppose that the economy is hit with an increase in At+1. Suppose that the central bank wants to adjust the money supply in such a way that the real wage does not change in response to this shock. How must the central bank adjust policy in response to the increase in A+1 in order to achieve this end? How does output react to the change in Aț+1 if the central bank follows such a policy? How does this change in Y; compare to a world in which the money supply is exogenous (i.e. does not react to the increase in Af+1)?

5. Suppose that we have a partial sticky price New Keynesian model. Suppose that the economy is hit with an increase in At+1. Suppose that the central bank wants to adjust the money supply in such a way that the real wage does not change in response to this shock. How must the central bank adjust policy in response to the increase in A+1 in order to achieve this end? How does output react to the change in Aț+1 if the central bank follows such a policy? How does this change in Y; compare to a world in which the money supply is exogenous (i.e. does not react to the increase in Af+1)?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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