Question 2. AD-AS Analysis with an Alternative Policy Rule. This question will have you derive a version of the aggregate demand curve under alternative assumptions about how the Fed conducts policy. Assume that the IS curve assumes the usual form: Y = C-mpc x T +Ī+Ģ 1 mpc 1 d mpc xr, where Y is output, r is the real interest rate, and the remaining parameters utilize the same notion that we used in class. Suppose that the Fed's actions are summarized by the following monetary policy curve: r=r+ax (Y – YP) + λ × π,
Question 2. AD-AS Analysis with an Alternative Policy Rule. This question will have you derive a version of the aggregate demand curve under alternative assumptions about how the Fed conducts policy. Assume that the IS curve assumes the usual form: Y = C-mpc x T +Ī+Ģ 1 mpc 1 d mpc xr, where Y is output, r is the real interest rate, and the remaining parameters utilize the same notion that we used in class. Suppose that the Fed's actions are summarized by the following monetary policy curve: r=r+ax (Y – YP) + λ × π,
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