Consider a modified aggregate supply function which takes account for the emergence of random business cycle shocks (+) with Ele] -0 in the sense that Yt + y + ₁ The loss function is the same as in exercise 1: L-(-k)²+(₁)² Notation: : random shock; Ele,] expected value of , b: constant parameter, all other variables see Exercise 1. aving considered the scenario above complete the following tasks: a) Derive the central bank's preferred inflation rate and explain. b) The result in a) reads as T₁ = b(k - ÿ) - 146 Explain the economic intuition of this result. c) Consider a more conservative central banker whose loss function is represented by

Consider a modified aggregate supply function which takes account for the emergence of random business cycle shocks (+) with Ele] -0 in the sense that Yt + y + ₁ The loss function is the same as in exercise 1: L-(-k)²+(₁)² Notation: : random shock; Ele,] expected value of , b: constant parameter, all other variables see Exercise 1. aving considered the scenario above complete the following tasks: a) Derive the central bank's preferred inflation rate and explain. b) The result in a) reads as T₁ = b(k - ÿ) - 146 Explain the economic intuition of this result. c) Consider a more conservative central banker whose loss function is represented by

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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