Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Question
Chapter 12, Problem 4E
(a)
To determine
The impact of nominal interest rate changes on the money supply.
(b)
To determine
The impact of aggregate
(c)
To determine
The impact of inflation shock on the money supply.
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(a) Assume a temporary negative aggregate
supply shock strikes an economy. Please
explain how a central bank with a strict
inflation target will respond to this event?
(c). Consider an economy that starts out in steady state when the central bank decides to make the inflation target more ambitious. Analyse the effects of a decrease in the inflation target from ? to ??. Explain the mechanisms behind the adjustment to the new steady state.
Question 2:a. Give one example of a demand shock (a change that shifts demand curve) and oneexample of supply shock (a change that shifts supply curve) that may lead to an inflationarygap (positive output gap).b. How would the economy eliminate the inflationary gap and return to its long runequilibrium without any interventions from the policymakers (self-correcting mechanism)?
Chapter 12 Solutions
Macroeconomics (Fourth Edition)
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