Question 3 3.1 Suppose the economy of Panicia is initially at a long-run equilibrium. The Central Bank then increases the money supply growth rate. Assuming that any resulting inflation is expected, describe any likely changes in output and inflation that are caused by the increase in the money supply growth rate. Explain your conclusions using the aggregate demand-aggregate supply (AD-AS) diagram. 3.2 The Central Bank of Lala-land decides to increase the target inflation rate from 2 to 3 percent. Using the dynamic AD-AS model, show the effect of the change in the inflation rate by drawing a graph. When you draw your graph, assume that the economy is initially in the long run equilibrium. Please provide a brief explanation of your graph. (Hint: Use the Reserve Bank's policy reaction function (Taylor rule) and the AD-AS model)

Question 3 3.1 Suppose the economy of Panicia is initially at a long-run equilibrium. The Central Bank then increases the money supply growth rate. Assuming that any resulting inflation is expected, describe any likely changes in output and inflation that are caused by the increase in the money supply growth rate. Explain your conclusions using the aggregate demand-aggregate supply (AD-AS) diagram. 3.2 The Central Bank of Lala-land decides to increase the target inflation rate from 2 to 3 percent. Using the dynamic AD-AS model, show the effect of the change in the inflation rate by drawing a graph. When you draw your graph, assume that the economy is initially in the long run equilibrium. Please provide a brief explanation of your graph. (Hint: Use the Reserve Bank's policy reaction function (Taylor rule) and the AD-AS model)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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