Consider an economy in which aggregate demand and supply relations are as fallows: yt = B0 + B1(mt - pt) + vt, yt = ý + a(pt - Et-1pt) The random demand disturbance vt is autocorrelated: vt = pvt-1 + ξt , where ξt is white noise unrelated to the vt process. Derive the soltion for pt. Then use it to obtain an expression for pt - Et-1pt and substitute into (AS) to find a solution for yt.
Consider an economy in which aggregate demand and supply relations are as fallows: yt = B0 + B1(mt - pt) + vt, yt = ý + a(pt - Et-1pt) The random demand disturbance vt is autocorrelated: vt = pvt-1 + ξt , where ξt is white noise unrelated to the vt process. Derive the soltion for pt. Then use it to obtain an expression for pt - Et-1pt and substitute into (AS) to find a solution for yt.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider an economy in which aggregate demand and supply relations are as fallows:
yt = B0 + B1(mt - pt) + vt,
yt = ý + a(pt - Et-1pt)
The random demand disturbance vt is autocorrelated:
vt = pvt-1 + ξt ,
where ξt is white noise unrelated to the vt process.
Derive the soltion for pt. Then use it to obtain an expression for pt - Et-1pt and substitute into (AS) to find a solution for yt.
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