Consider an increase in government spending. Assume that the economy is initially operating at the natural level of output. In the short run, the impact on the IS-LM framework is This change results in In the medium run, the no output gap a negative output gap The resulting medium- a positive output gap his change is OYrn and current period's inflation is less than target inflation OY > Yn, r = rn and current period's inflation is greater than target inflation ♦
Consider an increase in government spending. Assume that the economy is initially operating at the natural level of output. In the short run, the impact on the IS-LM framework is This change results in In the medium run, the no output gap a negative output gap The resulting medium- a positive output gap his change is OYrn and current period's inflation is less than target inflation OY > Yn, r = rn and current period's inflation is greater than target inflation ♦
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter12: Money Growth And Intlation
Section: Chapter Questions
Problem 6PA
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