Suppose that the central bank observed a drop in real GDP, but does not know what caused this drop.   -How would the central bank respond if it believed that GDP dropped because of a decline in total factor productivity, and that real business cycle theory correct?                     -How would the central bank respond if it believed that GDP dropped because of a wave of pessimism, and what the Keynesian coordination failure model is correct?

Principles of Economics, 7th Edition (MindTap Course List)
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ISBN:9781285165875
Author:N. Gregory Mankiw
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Chapter36: Six Debates Over Macroeconomic Policy
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Suppose that the central bank observed a drop in real GDP, but does not know what caused this drop.

 

-How would the central bank respond if it believed that GDP dropped because of a decline in total factor productivity, and that real business cycle theory correct?

 

 

 

 

 

 

 

 

 

 

-How would the central bank respond if it believed that GDP dropped because of a wave of pessimism, and what the Keynesian coordination failure model is correct?

 

 

 

 

 

 

 

 

 

 

-Explain your answers to both parts using diagrams.

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