Suppose that the private sector does not have rational expectations, but instead follows an adaptive expectations scheme. That is, the private sectors expected inflation rate is what the inflation rate was last period. Show in a diagram how the inflation rate and output move over time if the initial inflation rate is the optimal rate i*, and then the central bank acts to exploit the Phillips curve. Explain your results.
Answer to relevant QuestionsFigure shows that the inflation rate and the money growth rate increased on trend until about 1980, and then decreased. What happened to the variability in the inflation rate and the variability in the money growth rate in ...Assume an economy with a coal producer, a steel producer, and some consumers (there is no government). In a given year, the coal producer produces 15 million tons of coal and sells it for $5 per ton. The coal producer pays ...In the United States, a large fraction of transactions among banks takes place over Fedwire, which is an electronic payments system operated by the Federal Reserve System.6 During 2008, on an average day, 521,000 payments ...The Great Moderation in part refers to the moderate variability in real GDP that occurred after the 1981-1982 recession and before the 2008-2009 recession. In Figure what do you observe about the behavior of the deviations ...Suppose that the economy is in a long-run equilibrium where the inflation rate is greater than the optimal rate i*, and then the central bank acts to reduce the inflation rate to i*.(a) Suppose that the central bank decides ...
Post your question