A. Derive the DAD and DAS equations. Hint: For DAS, express T as a function of (YY); for DAD, express Y, as a function of (₁ — π₂). B. Suppose the economy experiences an inflation scare: in period t, people believe that inflation in t+1 will be higher sont> 0 (but for this period only). What happens to DAD and DAS in t? Explain what happens to output, inflation, nominal interest rate, and real interest rate. Show a graph and provide labels for equilibrium points (A, B, C, etc.) as needed.

A. Derive the DAD and DAS equations. Hint: For DAS, express T as a function of (YY); for DAD, express Y, as a function of (₁ — π₂). B. Suppose the economy experiences an inflation scare: in period t, people believe that inflation in t+1 will be higher sont> 0 (but for this period only). What happens to DAD and DAS in t? Explain what happens to output, inflation, nominal interest rate, and real interest rate. Show a graph and provide labels for equilibrium points (A, B, C, etc.) as needed.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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