Suppose output is at potential and inflation equals its target. Then, an adverse supply shock pushes inflation above its target. The larger the coefficient on the inflation gap: a. the smaller the increase in the ex ante real interest rate. b. the longer the economy stays at a stagflation equilibrium (high inflation and low output). C. the smaller the output decrease. d. the quicker the economy returns to its long-run equilibrium.

Suppose output is at potential and inflation equals its target. Then, an adverse supply shock pushes inflation above its target. The larger the coefficient on the inflation gap: a. the smaller the increase in the ex ante real interest rate. b. the longer the economy stays at a stagflation equilibrium (high inflation and low output). C. the smaller the output decrease. d. the quicker the economy returns to its long-run equilibrium.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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