Suppose output is at potential and inflation equals its target. Then, an adverse supply shock pushes inflation above its target. The larger the coefficient on the inflation gap: a. the smaller the increase in the ex ante real interest rate. b. the longer the economy stays at a stagflation equilibrium (high inflation and low output). C. the smaller the output decrease. d. the quicker the economy returns to its long-run equilibrium.

Suppose output is at potential and inflation equals its target. Then, an adverse supply shock pushes inflation above its target. The larger the coefficient on the inflation gap: a. the smaller the increase in the ex ante real interest rate. b. the longer the economy stays at a stagflation equilibrium (high inflation and low output). C. the smaller the output decrease. d. the quicker the economy returns to its long-run equilibrium.

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter14: Money And The Economy

Section: Chapter Questions

Problem 10QP

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