*Monetary policymakers observe an increase in output in the economy and believe it is a result of an increase in potential output. If they were correct, what would the appropriate policy response be to maintain the existing inflation target? If they were incorrect and the increase in output resulted simply from a positive supply shock, what would the long-run impact be of their policy response?
Answer to relevant Questions*Consider a previously closed economy that opens up to international trade. Use the aggregate demand-aggregate supply framework to illustrate a situation where this would lead to lower inflation in the long run. Will changes in technology affect the rate at which the short-run aggregate supply curve shifts in response to an output gap? Why or why not? Provide some specific examples of how technology will change the rate of ...Explain why you might expect the recovery from the 2007-2009 recessions to be weaker than normal? Suppose there is an unexpected slowdown in the rate of productivity growth in the economy so that forecasters consistently overestimate the growth rate of GDP. If the central bank bases its policy decisions on the consensus ...Compare the impact of a given change in monetary policy in two economies that are similar in every way except that, in Economy A, the financial system has a large shadow banking system providing many alternatives to bank ...
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