The economy starts at the steady state. Which of the following changes will increase short-run output on impact? Select one: a. An increase in the parameter governing how aggressively monetary policy responds to inflation. O b. A decrease in the target rate of inflation. O c. A decrease in the parameter governing how aggressively monetary policy responds to inflation. O d. An increase in the target rate of inflation.

The economy starts at the steady state. Which of the following changes will increase short-run output on impact? Select one: a. An increase in the parameter governing how aggressively monetary policy responds to inflation. O b. A decrease in the target rate of inflation. O c. A decrease in the parameter governing how aggressively monetary policy responds to inflation. O d. An increase in the target rate of inflation.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: The Short-run Trade-off Between Inflation And Unemployment

Section: Chapter Questions

Problem 4PA

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Now, consider an economy in which the demand for money is of the formY(1 + it)for t = 0, 1, 2, · · · , where output is 150 and it denotes the nominal interest rate inperiod t. The REAL INTEREST RATE, denoted r, is constant and equal to 4%. In period0 and 1, the money supply is 100 and people expect that money supply wouldbe 100 forever. People have rational expectations. In period 2, the central banksurprises people and sets the money supply will grow at 2 percent forever, that is,M0 = 100, M1 = 100, M2 = (1.02)M1, M3 = (1.02)M2, and so on. A. Find the inflation rate, nominal interest rate, real money balance in period 1,and expected inflation in period 2, given the information available in period1, π1, i1,M1 / P1, and, E1π2. B. Find the inflation rate, nominal interest rate, real money balance in period 2,and expected inflation in period 3, given the information available in period 2. (π2, i2, M2 / P2 and E2π3.) C. Find the inflation rate, nominal interest rate, and real money…