There is a temporary demand shock EDshock, output and inflation are given by:Y = 0.975, T = +0.005O Y = 0.975, π = -0.005Y = 1.025, π = +0.0051.025, π = : -0.005OY=-0.05. In the short run, immediately following this Consider the AD-AS model:Y = Y* ay (π = π*) + EDㅠπ = π² + 08 (Y-Y*) + €sSuppose the parameter values are a== 0.020.5, y = 2, p = 0.5, B = 2 with inflation target *and natural output normalized to Y* = 1. Suppose the economy begins in an initial long runequilibrium.

Inflation targeting refers to a banking policy opted by central bank that makes an adjustment to…

There is a temporary demand shock Ep = -0.05. In the short run, immediately following this shock, output and inflation are given by: OY=0.975, π = +0.005 Y = 0.975, π = -0.005 OY 1.025, T = +0.005 OY 1.025, π = -0.005

There is a temporary demand shock Ep = -0.05. In the short run, immediately following this shock, output and inflation are given by: OY=0.975, π = +0.005 Y = 0.975, π = -0.005 OY 1.025, T = +0.005 OY 1.025, π = -0.005

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

There is a temporary demand shock ED
shock, output and inflation are given by:
Y = 0.975, T = +0.005
O Y = 0.975, π = -0.005
Y = 1.025, π = +0.005
1.025, π = : -0.005
OY
=
-0.05. In the short run, immediately following this

Consider the AD-AS model:
Y = Y* ay (π = π*) + ED
ㅠ
π = π² + 08 (Y-Y*) + €s
Suppose the parameter values are a
=
= 0.02
0.5, y = 2, p = 0.5, B = 2 with inflation target *
and natural output normalized to Y* = 1. Suppose the economy begins in an initial long run
equilibrium.

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