Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter19: Earnings And Discrimination
Section: Chapter Questions
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![2 The basic Taylor model of price level adjust-
ment
The basic Taylor model of price level adjustment was derived under the as-
sumption that the nominal wage is set in period t remained unchanged for
periods t and t+ 1. suppose instead each period t contract specifies a nomi-
nal wage r for period t and x? for period t + 1. Assume these are given by
= pi + Ky: and a = E¡pt+1 + KErYt+1 The aggregate price level at time t
is equal to pt = 0.5(x + x). If aggregate demand given by y = m - Pt and
m = mo +wi, what is the effect of money shock we on pi and y? Explain why
output shows no persistence after money shock?
%3D
1](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0c76fac4-28ed-4648-9f54-320c35767717%2F7b1264a8-1df9-43cd-8214-e1a983bedf18%2Fdq59w7_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2 The basic Taylor model of price level adjust-
ment
The basic Taylor model of price level adjustment was derived under the as-
sumption that the nominal wage is set in period t remained unchanged for
periods t and t+ 1. suppose instead each period t contract specifies a nomi-
nal wage r for period t and x? for period t + 1. Assume these are given by
= pi + Ky: and a = E¡pt+1 + KErYt+1 The aggregate price level at time t
is equal to pt = 0.5(x + x). If aggregate demand given by y = m - Pt and
m = mo +wi, what is the effect of money shock we on pi and y? Explain why
output shows no persistence after money shock?
%3D
1
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