Consider an AD-AS model with AD curve Y − Y* = −αy(π − π*) + €D and AS curve π = ² + ¢ß(Y − Y*) + es with parameter values a = 2, y = 1, 6 = 1, ß = 2, and with inflation target * 0.01 and potential output normalised to Y* = 1. Starting from a long-run equilibrium with ² = π*, suppose there is a temporary supply shock es 0.05 and a temporary demand shock ED = 0.05. Which of the following is TRUE? =
Consider an AD-AS model with AD curve Y − Y* = −αy(π − π*) + €D and AS curve π = ² + ¢ß(Y − Y*) + es with parameter values a = 2, y = 1, 6 = 1, ß = 2, and with inflation target * 0.01 and potential output normalised to Y* = 1. Starting from a long-run equilibrium with ² = π*, suppose there is a temporary supply shock es 0.05 and a temporary demand shock ED = 0.05. Which of the following is TRUE? =
Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter11: Fiscal Policy: The Keynesian View And Historical Development Of Macroeconomics
Section: Chapter Questions
Problem 5CQ
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Consider an AD-AS model with AD curve Y - Y* = -αy(π − π*) + €D
and AS curve π = π² + ¢ß(Y−Y*) + es with parameter values a = 2,
y = 1,6 = 1, ß = 2, and with inflation target * = 0.01 and potential
output normalised to Y* = 1.
Starting from a long-run equilibrium with ² = π*,
= π*, suppose there is a
temporary supply shock es = 0.05 and a temporary demand shock
ED = 0.05. Which of the following is TRUE?
In the short run, inflation is 1% above target
O In the short run, output is 2% below potential
O In the short run, the real interest rate rises
O In the short run, the real interest rate falls](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe0c377f1-6d5b-4ab1-8f63-b73b32ebde28%2F417b812a-06cf-44cb-9dfe-88e90b1e70a4%2Fybyigtt_processed.png&w=3840&q=75)
Transcribed Image Text:-
Consider an AD-AS model with AD curve Y - Y* = -αy(π − π*) + €D
and AS curve π = π² + ¢ß(Y−Y*) + es with parameter values a = 2,
y = 1,6 = 1, ß = 2, and with inflation target * = 0.01 and potential
output normalised to Y* = 1.
Starting from a long-run equilibrium with ² = π*,
= π*, suppose there is a
temporary supply shock es = 0.05 and a temporary demand shock
ED = 0.05. Which of the following is TRUE?
In the short run, inflation is 1% above target
O In the short run, output is 2% below potential
O In the short run, the real interest rate rises
O In the short run, the real interest rate falls
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