Consider the AD-AS model: Y = Y* − αy (π − π*) + €D - π = π² + þß (Y− Y*) + €s Suppose the parameter values are a = 0.5, y = 2,6 = 0.5, B = 2 with inflation target * and natural output normalized to Y* = 1. Suppose the economy begins in an initial long run equilibrium. 0.02
Consider the AD-AS model: Y = Y* − αy (π − π*) + €D - π = π² + þß (Y− Y*) + €s Suppose the parameter values are a = 0.5, y = 2,6 = 0.5, B = 2 with inflation target * and natural output normalized to Y* = 1. Suppose the economy begins in an initial long run equilibrium. 0.02
Chapter1: Making Economics Decisions
Section: Chapter Questions
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![Consider the AD-AS model:
Y = Y* ay (π = π*) + ED
ㅠ
π = π² + 08 (Y-Y*) + €s
Suppose the parameter values are a
=
= 0.02
0.5, y = 2, p = 0.5, B = 2 with inflation target *
and natural output normalized to Y* = 1. Suppose the economy begins in an initial long run
equilibrium.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3933e659-0e4e-4082-b0d0-cddeecd047c4%2Fc011c246-3fb3-4898-beeb-be9623204da5%2Fnseazua_processed.png&w=3840&q=75)
Transcribed Image Text:Consider the AD-AS model:
Y = Y* ay (π = π*) + ED
ㅠ
π = π² + 08 (Y-Y*) + €s
Suppose the parameter values are a
=
= 0.02
0.5, y = 2, p = 0.5, B = 2 with inflation target *
and natural output normalized to Y* = 1. Suppose the economy begins in an initial long run
equilibrium.
![There is a temporary supply shock es
output and inflation are given by:
OY 1.02, T = +0.01
Y = 1.02, π = +0.04
Y = 0.98, π = -0.04
Y = 0.98, π =
+0.04
=
+0.05. In the short run, immediately following this shock,](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3933e659-0e4e-4082-b0d0-cddeecd047c4%2Fc011c246-3fb3-4898-beeb-be9623204da5%2Fm4wa3wj_processed.png&w=3840&q=75)
Transcribed Image Text:There is a temporary supply shock es
output and inflation are given by:
OY 1.02, T = +0.01
Y = 1.02, π = +0.04
Y = 0.98, π = -0.04
Y = 0.98, π =
+0.04
=
+0.05. In the short run, immediately following this shock,
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