The text assumes that the natural rate of interest r is a constant parameter. Suppose instead that
Question:
a. How would this change affect the equations for dynamic aggregate demand and dynamic aggregate supply?
b. How would a shock to pt affect output, inflation, the nominal interest rate, and the real interest rate?
c. Can you see any practical difficulties that a central bank might face if pt varied over time?
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Related Book For 
Macroeconomics
ISBN: 978-1464168505
5th Canadian Edition
Authors: N. Gregory Mankiw, William M. Scarth
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