Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Chapter 15, Problem 5PA
To determine
Explain the effect of temporary demand shock in the long-run equilibrium.
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An economy's aggregate demand curve (the relationship between short-run equilibrium output and inflation) is described by the equation:Y = 15,000 - 12,000π, where π is the inflation rate. Initially, the inflation rate is 2 percent or π = 0.02. Potential output Yp equals 14,640.Note: Keep as much precision as possible during your calculations. Your final answer for inflation should be accurate to at least two decimal places and output should be accurate to the nearest whole number.a) Find inflation and output in short-run equilibrium.
Inflation : 0%Output : $0
b) Find inflation and output in long-run equilibrium.
Inflation : 0%Output : $0
Fiscal and Monetary Policies
Nowadays, many Central Banks use target inflation in their monetary policy framework to achieve a stable and low level of inflation. Related to that, do you agree with the statement that says “by only focusing on achieving inflation target, the Central Bank will not be able to control the economy’s output fluctuation.” Explain your answer by using an appropriate theory, model/equation
Econ 2 2022- 2b: How would you expect a decrease in Aggregate Demand to affect both inflation and real GDP? Under what conditions would you expect a decrease in AD to have a bigger effect on inflation than real GDP?
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