Answered: Suppose that the following equations…

Suppose that the following equations represent an entire economy. What size output shock will send the economy into a liquidity trap? t = €y -0.5. (r? - 3%) r = 2% + (πt-2%) + 2.9t πt = 2% + t

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter27: Issues In Macroeconomic Theory And Policy

Section: Chapter Questions

Problem 10P

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Question

Suppose that the following equations represent an entire economy.
What size output shock will send the economy into a liquidity trap?
t = y0.5 (r - 3%)
r = 2% + (πt - 2%) + 2.9t
πt = 2% + t

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