Question

Revisiting the inflation shock (hard): Reread the infation shock example (event
#1) in Section 13.5. Suppose the size of the shock is o0.
(a) In the AS/AD graphs describing the response of the economy to the
infation shock, we labeled the initial response of infation as !1 and
initial output as Y
(b) Now suppose the parameters of the AS and AD curves take the following
values: o0 = 2%, a = 0, b = 1/2, m = 1/2, ν = 1/2, and ! = 2%. SolveReview of the solution to the AD/AS model The solution is Ỹ - 3- bm (t-1-7+.) 1 + bmv 9-1 + bmvi + av + et 1+ bmv
for the value of short-run output and the infation rate for the frst 3 years
after the shock.

Answer 1

Answer:

...........not sure......... M