Modern Principles: Macroeconomics
Modern Principles: Macroeconomics
3rd Edition
ISBN: 9781429278409
Author: Tyler Cowen, Alex Tabarrok
Publisher: Worth Publishers
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Chapter 16, Problem 3FT

Sub part (a):

To determine

The effect of positive potential growth shock, ignoring the possible effects of sticky wages and prices.

Sub part (b):

To determine

The impact on inflation, when the central bank keeps the AD fixed.

Sub part (c):

To determine

What should the central bank do to bring the inflation back to the initial point.

Sub part (d):

To determine

What should the central bank do to bring back the real growth rate.

Sub part (e):

To determine

Whether the central bank faces a cruel trade-off between inflation and real growth.

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