Suppose that there are shocks total factor productivity which cause aggregate output to fluctuate. What does this imply for the Friedman rule, that is, how should the central bank conduct monetary policy optimally? Discuss.
Answer to relevant QuestionsFrom Figures, determine and discuss how fluctuations in the nominal interest rate and inflation have contributed to fluctuations in the real interest rate from 2000 to 2012. In year 1 and year 2, there are two products produced in a given economy, computers and bread. Suppose that there are no intermediate goods. In year 1, 20 computers are produced and sold at $1,000 each, and in year 2, 25 ...Suppose that the government deficit is 10, interest on the government debt is 5, taxes are 40, government expenditures are 30, consumption expenditures are 80, net factor payments are 10, the current account surplus is – ...How would we modify the Friedman rule in the context of a New Keynesian sticky price model like the one in Chapter, assuming that monetary policy is the only policy that can be used to close output gaps? Explain.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 ...
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