6. Imagine inflation is 10%, and the central bank wants to have inflation equal to 2%. When announcing information about future monetary policy, the central bank brings inflation expectations to 4%. The slope of the Phillips Curve is 1/3. Cost push shocks are zero. How much must short-run output fall to achieve the goal of 2% inflation? 7. Repeat the last exercise assuming that the announcement of future monetary policy is less effective, bringing inflation expectations to 8%.

6. Imagine inflation is 10%, and the central bank wants to have inflation equal to 2%. When announcing information about future monetary policy, the central bank brings inflation expectations to 4%. The slope of the Phillips Curve is 1/3. Cost push shocks are zero. How much must short-run output fall to achieve the goal of 2% inflation? 7. Repeat the last exercise assuming that the announcement of future monetary policy is less effective, bringing inflation expectations to 8%.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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