ed Question 10Inflation Rate (n)15.0%14.0%13.0%12.0%11.0%10.0%9.0%8.0%7.0%6.0%5.0%4.0%3.0%2.0%1.0%0.0%1,0002,0003,000000't4,000000 55,00000036,0007,0008,000000'6010,000LRASReal GDP (Y)This policy causes the inflation rate to drop toAD12,0003 11,00013,00014,00015,000SRAS16,000Consider the graph above. It is also in the files folder under the nameShortRun andthe Long Run. The graph pertains to a hypothetical country. The central bank in thiscountry (also called the Fed) follows an inflation targeting policy. The current targetinflation rate in 8 percent. The natural rate of unemployment is 5 percent and Okun'salpha is 8.17,00018,0009,00020,000Finally, the president of the country appoints a new chairperson for the central bandand the chair decides to bring the runaway inflation under control (as the U.S. FED didin 1980). The new chair realizes that 8 percent inflation target is way too high. So,s/he decides to reduce the long-term target inflation rate to 2 percent through adrastic contractionary monetary policy.short run. Moreover, a cyclical unemployment ofin the labor market. However, in the long run, inflation rate settles atpercent and the cyclical rate equalspercent in thepercent emergespercent.

Macroeconomic monitoring will remain critical since it determines the economy's final expansion path…

Finally, the president of the country appoints a new chairperson for the central band and the chair decides to bring the runaway inflation under control (as the U.S. FED did in 1980). The new chair realizes that 8 percent inflation target is way too high. So, s/he decides to reduce the long-term target inflation rate to 2 percent through a drastic contractionary monetary policy. This policy causes the inflation rate to drop to percent in the short run. Moreover, a cyclical unemployment of in the labor market. However, in the long run, inflation rate settles at percent and the cyclical rate equals percent emerges percent.

Finally, the president of the country appoints a new chairperson for the central band and the chair decides to bring the runaway inflation under control (as the U.S. FED did in 1980). The new chair realizes that 8 percent inflation target is way too high. So, s/he decides to reduce the long-term target inflation rate to 2 percent through a drastic contractionary monetary policy. This policy causes the inflation rate to drop to percent in the short run. Moreover, a cyclical unemployment of in the labor market. However, in the long run, inflation rate settles at percent and the cyclical rate equals percent emerges percent.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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