Consider the AD-AS model Y = Y* — ay(π − π*) + €D - π = π² + ß(Y - Y*) + €s Suppose the parameter values are a = 0.5, y = 2, p = 0.5, ß = 1 with inflation target 7* 0.02 and natural output normalized to Y* = 1. = Suppose the economy begins in an initial long run equilibrium and there is then a temporary demand shock p = -0.05. In the short run, immediately following this shock, output and inflation are given by: Y = 1.025, π = -0.005 Y = 0.975, T = +0.005 O Y = 1.025, π = +0.005 OY=0.966, π = -0.003
Consider the AD-AS model Y = Y* — ay(π − π*) + €D - π = π² + ß(Y - Y*) + €s Suppose the parameter values are a = 0.5, y = 2, p = 0.5, ß = 1 with inflation target 7* 0.02 and natural output normalized to Y* = 1. = Suppose the economy begins in an initial long run equilibrium and there is then a temporary demand shock p = -0.05. In the short run, immediately following this shock, output and inflation are given by: Y = 1.025, π = -0.005 Y = 0.975, T = +0.005 O Y = 1.025, π = +0.005 OY=0.966, π = -0.003
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![Consider the AD-AS model
Y = Y* — ay(π − π* ) + €D
-
π = π² + OB(Y−Y*) + €s
Suppose the parameter values are a = 0.5, y = 2, p = 0.5, ß = 1 with inflation
target *
= 0.02 and natural output normalized to Y* = 1.
=
Suppose the economy begins in an initial long run equilibrium and there is then a
temporary demand shock Ep = -0.05. In the short run, immediately following this
shock, output and inflation are given by:
Y = 1.025, π = -0.005
Y = 0.975, π = +0.005
Y = 1.025, π = +0.005
Y = 0.966, π = -0.003](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F512e7a2e-5a34-41ea-a2e7-4d260bcc1dba%2F3ba18110-6512-412a-a120-31a648dfb126%2F6rz2q0i_processed.png&w=3840&q=75)
Transcribed Image Text:Consider the AD-AS model
Y = Y* — ay(π − π* ) + €D
-
π = π² + OB(Y−Y*) + €s
Suppose the parameter values are a = 0.5, y = 2, p = 0.5, ß = 1 with inflation
target *
= 0.02 and natural output normalized to Y* = 1.
=
Suppose the economy begins in an initial long run equilibrium and there is then a
temporary demand shock Ep = -0.05. In the short run, immediately following this
shock, output and inflation are given by:
Y = 1.025, π = -0.005
Y = 0.975, π = +0.005
Y = 1.025, π = +0.005
Y = 0.966, π = -0.003
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