5. Imagine inflation is 10%, and the central bank wants to have inflation equal te 2%. When announcing information about future monetary policy, the central bank brings inflation expectations to 4%. The slope of the Phillips Curve is 1/3. Cost push shocks are zero. How much must short-run output fall to achieve the goal of 2% inflation? tho montof future monotary nolicy

Principles of Macroeconomics (MindTap Course List)
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Author:N. Gregory Mankiw
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Chapter22: The Short-Run Trade-off Between Inflation And Unemployment
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6. Imagine inflation is 10%, and the central bank wants to have inflation equal to
2%. When announcing information about future monetary policy, the central bank
brings inflation expectations to 4%. The slope of the Phillips Curve is 1/3. Cost
push shocks are zero. How much must short-run output fall to achieve the goal of
2% inflation?
7. Repeat the last exercise assuming that the announcement of future monetary policy
is less effective, bringing inflation expectations to 8%.
Transcribed Image Text:6. Imagine inflation is 10%, and the central bank wants to have inflation equal to 2%. When announcing information about future monetary policy, the central bank brings inflation expectations to 4%. The slope of the Phillips Curve is 1/3. Cost push shocks are zero. How much must short-run output fall to achieve the goal of 2% inflation? 7. Repeat the last exercise assuming that the announcement of future monetary policy is less effective, bringing inflation expectations to 8%.
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