Suppose you observe the time series of output y and real money supply M/ P reported in the Figure below. Nominal money supply M is under full control of the Central Bank. Output y Real Money Supply M$IP Time t Time t 1 3 4 1 3 4 Interpret these time series using the ASAD Redux model with workers misperceptions (Lecture Notes, Chapter 1). Assume that the time paths are caused by a single permanent shock hitting the economy at time t= 1, and interpret time t: 6 as the medium run. Your general task is to guess what type of shock can be responsible for the observed time series. Answer each of the following questions, providing clear motivation for your statements:

Suppose you observe the time series of output y and real money supply M/ P reported in the Figure below. Nominal money supply M is under full control of the Central Bank. Output y Real Money Supply M$IP Time t Time t 1 3 4 1 3 4 Interpret these time series using the ASAD Redux model with workers misperceptions (Lecture Notes, Chapter 1). Assume that the time paths are caused by a single permanent shock hitting the economy at time t= 1, and interpret time t: 6 as the medium run. Your general task is to guess what type of shock can be responsible for the observed time series. Answer each of the following questions, providing clear motivation for your statements:

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter27: Issues In Macroeconomic Theory And Policy

Section: Chapter Questions

Problem 6P

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