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)
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand
Section: Chapter Questions
Problem 3PA
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Transcribed Image Text: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)
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