Consider an AD-AS model with AD curve Y − Y* = −αy(π − π*) + €D and AS curve π = ² + ¢ß(Y − Y*) + es with parameter values a = 2, y = 1, 6 = 1, ß = 2, and with inflation target * 0.01 and potential output normalised to Y* = 1. Starting from a long-run equilibrium with ² = π*, suppose there is a temporary supply shock es 0.05 and a temporary demand shock ED = 0.05. Which of the following is TRUE? =

Consider an AD-AS model with AD curve Y − Y* = −αy(π − π) + €D and AS curve π = ² + ¢ß(Y − Y) + es with parameter values a = 2, y = 1, 6 = 1, ß = 2, and with inflation target * 0.01 and potential output normalised to Y* = 1. Starting from a long-run equilibrium with ² = π*, suppose there is a temporary supply shock es 0.05 and a temporary demand shock ED = 0.05. Which of the following is TRUE? =

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter11: Fiscal Policy: The Keynesian View And Historical Development Of Macroeconomics

Section: Chapter Questions

Problem 5CQ

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