The economy is characterized by the following equations: An IS Curve Y = ā- b(Rt - F) A Fisher equation: R₁ = it - Etπt+1 A monetary policy rule: it = F + Xt +m(πt - π) + Etπt+1, - A Phillips curve: π₁ = Et-1πt + vỸt + §t. Where Xt is a monetary policy shock, which means a change in interest rates by the Fed that is exogenous. The rest of the notation is the same as in class. The economy has been in the long-run equilibrium. Xt is zero in the long-run. You will need the following values for some parameters: 1, m = 3, b = 1, π = 2% Suddenly, in a year we will call 2025, the Federal Reserve decides out of the blue to lower interest rates by 1 percentage point. That is X2025 = -1%. In the year 2026, X2026 = 0. What is the value of short-run output in 2026? You need to enter your answer using a number. If, for example, your answer is 1%, then you need to enter 0.01.
The economy is characterized by the following equations: An IS Curve Y = ā- b(Rt - F) A Fisher equation: R₁ = it - Etπt+1 A monetary policy rule: it = F + Xt +m(πt - π) + Etπt+1, - A Phillips curve: π₁ = Et-1πt + vỸt + §t. Where Xt is a monetary policy shock, which means a change in interest rates by the Fed that is exogenous. The rest of the notation is the same as in class. The economy has been in the long-run equilibrium. Xt is zero in the long-run. You will need the following values for some parameters: 1, m = 3, b = 1, π = 2% Suddenly, in a year we will call 2025, the Federal Reserve decides out of the blue to lower interest rates by 1 percentage point. That is X2025 = -1%. In the year 2026, X2026 = 0. What is the value of short-run output in 2026? You need to enter your answer using a number. If, for example, your answer is 1%, then you need to enter 0.01.
Chapter14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, And Sources Of Business Cycles
Section: Chapter Questions
Problem 19E
Related questions
Question
6
Transcribed Image Text:The economy is characterized by the following
equations:
An IS Curve Y = ā- b(Rt - F)
A Fisher equation: R₁ = it - Etπt+1
A monetary policy rule:
it = F + Xt +m(πt
- π) + Etπt+1,
-
A Phillips curve: π₁ = Et-1πt + vỸt + §t.
Where Xt is a monetary policy shock, which
means a change in interest rates by the Fed that
is exogenous. The rest of the notation is the same
as in class. The economy has been in the long-run
equilibrium. Xt is zero in the long-run.
You will need the following values for some
parameters: 1, m = 3, b = 1, π = 2%
Suddenly, in a year we will call 2025, the Federal
Reserve decides out of the blue to lower interest
rates by 1 percentage point. That is
X2025 = -1%.
In the year 2026, X2026 = 0.
What is the value of short-run output in 2026?
You need to enter your answer using a number. If,
for example, your answer is 1%, then you need to
enter 0.01.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 3 images
Recommended textbooks for you
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Macroeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506756
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Macroeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506756
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
