Consider the economy represented in the graph. This economy has been hit by a positive demand shock (represented by point B). Before the shock the economy was at equilibrium (representedby point A). The top graph represents the equilibrium in the goods market, the labour market is depicted in the middle graph, and the bottom graph shows the central bank's monetary rule.r, real interestrateIsw, realwagesWen, inflationTL1IITAyeBBBy₁ISMRIS'y, outputWSPSN, employmentPCy, outputSelect all the CORRECT statements:The Central Bank will wait up to two periods to understand if the shock is permanent or temporary, before adjusting interest rate.If the demand shock is temporary, once the adjustment process guided by the central bank finishes, the economy will be back at the same output (Yt=ye) and interest rate (rt = rs).At point B there is a positive bargaining gap between the WS-PS which puts pressure on prices to increase.The slope of the Phillips curve (PC) does not matter for the central bank's decision of how much to change interest rate.

The central bank of an economy is responsible for planning, implementing, and overseeing various…

Consider the economy represented in the graph. This economy has been hit by a positive demand shock (represented by point B). Before the shock the economy was at equilibrium (represented by point A). The top graph represents the equilibrium in the goods market, the labour market is depicted in the middle graph, and the bottom graph shows the central bank's monetary rule.

Consider the economy represented in the graph. This economy has been hit by a positive demand shock (represented by point B). Before the shock the economy was at equilibrium (represented by point A). The top graph represents the equilibrium in the goods market, the labour market is depicted in the middle graph, and the bottom graph shows the central bank's monetary rule.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose country A has a central bank with full credibility, and country B has a central bank with no credibility.Using a graph of aggregate demand and supply EXPLAIN how the credibility of each country’s central bank affect economic outcomes, if both countries are hit with the same a) positive aggregate demand shock? b) negative temporary aggregate supply shock?