BuyFind

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781337091985
BuyFind

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781337091985

Solutions

Chapter
Section
Chapter 17, Problem 5PA
Textbook Problem

The inflation rate is 10 percent, and the central bank is considering slowing the rate of money growth to reduce inflation to 5 percent. Economist Milton believes that expectations of inflation change quickly in response to new policies, whereas economist James believes that expectations are very sluggish. Which economist is more likely to favor the proposed change in monetary policy? Why?

Expert Solution
To determine

The response of inflation to new policies.

Explanation of Solution

With 10 percent of inflation rate, the central bank tries to reduce the growth of money supply to reduce inflation at 5 percent. Here, some economists believe that the expectations adjust quickly in response to inflation rate. That is, a change according to the change in policy is favored more to be used in the contradictory monitory policy than an economist with the opposite view...

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