Examine the equilibrium below. Potential GDP equals 14. Now suppose that an increase in inflationary expectations raises the inflation rate by 2 percentage points. After this change, what will the inflation rate be, in the short run and in the long run? Assume that the Fed never reacts to GDP gaps. 7 IA 1 AD 10 15 20 25 30 GDP (Y) 9, 2. inflation rate (Tt)
Examine the equilibrium below. Potential GDP equals 14. Now suppose that an increase in inflationary expectations raises the inflation rate by 2 percentage points. After this change, what will the inflation rate be, in the short run and in the long run? Assume that the Fed never reacts to GDP gaps. 7 IA 1 AD 10 15 20 25 30 GDP (Y) 9, 2. inflation rate (Tt)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Examine the equilibrium below. Potential GDP equals 14. Now suppose that
an increase in inflationary expectations raises the inflation rate by 2 percentage
points. After this change, what will the inflation rate be, in the short run and in
the long run? Assume that the Fed never reacts to GDP gaps.
7
IA
AD
5.
10
15
25
30
GDP (Y)
20
inflation rate (Tt)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4af65f2b-5a26-424b-9109-ee7a42f60fe3%2Ffe2fdfd0-5710-44bf-a515-e977608c38f0%2Fnp6sdlq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Examine the equilibrium below. Potential GDP equals 14. Now suppose that
an increase in inflationary expectations raises the inflation rate by 2 percentage
points. After this change, what will the inflation rate be, in the short run and in
the long run? Assume that the Fed never reacts to GDP gaps.
7
IA
AD
5.
10
15
25
30
GDP (Y)
20
inflation rate (Tt)
![O Short run 7.5%, long run 5.5%
O Short run 5.5%, long run 5.5%
O Short run 7.5%, long run 7.5%
O Short run 5.5%, long run 7.5%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4af65f2b-5a26-424b-9109-ee7a42f60fe3%2Ffe2fdfd0-5710-44bf-a515-e977608c38f0%2F32dyqjl_processed.jpeg&w=3840&q=75)
Transcribed Image Text:O Short run 7.5%, long run 5.5%
O Short run 5.5%, long run 5.5%
O Short run 7.5%, long run 7.5%
O Short run 5.5%, long run 7.5%
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