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Consider an AD-AS model with AD curve Y−Y* = −ay(n − π*) + ED and AS curve = + 8(Y-Y*) + es with parameter values a = 0.5, y = 1,6 = 1 and B = 0.5 and with inflation target = 0.02 and potential output normalised to Y* = 1.

Consider an AD-AS model with AD curve Y−Y* = −ay(n − π*) + ED and AS curve = + 8(Y-Y*) + es with parameter values a = 0.5, y = 1,6 = 1 and B = 0.5 and with inflation target = 0.02 and potential output normalised to Y* = 1.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Consider an AD-AS model with AD curve Y-Y* = -ay(π*) + ED and AS curve π = +B(Y - Y*) + Es with parameter values a = 0.5, y = 1, 0 = 1 and 3 = 0.5 and with inflation target * = 0.02 and potential output normalised to Y* = 1. Starting from a long-run equilibrium with = *, suppose there is a temporary demand shock p = -0.05. Which of the following is TRUE? In the short run, output is 4% below trend In the short run, output is 4% above trend In the short run, inflation is 3% O In the short and the long run, output is 4% below trend
Transcribed Image Text:Consider an AD-AS model with AD curve Y-Y* = -ay(π*) + ED and AS curve π = +B(Y - Y*) + Es with parameter values a = 0.5, y = 1, 0 = 1 and 3 = 0.5 and with inflation target * = 0.02 and potential output normalised to Y* = 1. Starting from a long-run equilibrium with = *, suppose there is a temporary demand shock p = -0.05. Which of the following is TRUE? In the short run, output is 4% below trend In the short run, output is 4% above trend In the short run, inflation is 3% O In the short and the long run, output is 4% below trend
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