(Answered) Consider the as-ad model in which the central bank follows

Management Studies

Consider the AS-AD model in which the central bank follows the so-called Taylor rule: Rt - r¯ = ¯m(πt - π¯) + ¯nY˜t. Combine the Taylor rule with the IS curve equation to derive the new AD curve. How is it different from the baseline case considered in class? Illustrate both cases on the same AS-AD diagram.

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