The medium-run equilibrium is characterized by four conditions: - Output is equal to potential output Y = Yn - The unemployment rate is equal to the natural rate u = un - - · The real policy interest rate is equal to the natural rate of interest rË where output equals Yn The expected rate of inflation π² = π a. If the level of expected inflation is formed so πe equals π(-1) characterize the behavior of inflation in a medium-run equilibrium (think back to the general Phillips curve equation). b. If the level of expected inflation is π what is the level of actual inflation in the medium- run equilibrium?
The medium-run equilibrium is characterized by four conditions: - Output is equal to potential output Y = Yn - The unemployment rate is equal to the natural rate u = un - - · The real policy interest rate is equal to the natural rate of interest rË where output equals Yn The expected rate of inflation π² = π a. If the level of expected inflation is formed so πe equals π(-1) characterize the behavior of inflation in a medium-run equilibrium (think back to the general Phillips curve equation). b. If the level of expected inflation is π what is the level of actual inflation in the medium- run equilibrium?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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