Imagine the economy starts off at the steady state with mv1, Ask an Expert

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Imagine the economy starts off at the steady state, with m=v=1 and b=1/2; additionally, suppose that the Fed's infaltion target (π-bar) is 1% and that the real federal fund rates (r-bar) is 1%. In period 1, political uncertainty causes a negative AD shock that lasts two periods (period 1 and 2).

Find the (short-run) equilibrium using the model for each period t=1,2,3,4 and for the steady state and draw a diagram at each period. With this information at hand, answer the following question:

a) what is the short run output in period 1 ?

b) what is the interest rate in period 2 ?

c) what is the short run output in period 2 ?

d) what is the interest rate in period 3 ?

e) what is the inflation rate in period 3?

f) what is the short run output in period 4 ?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91675818

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