Question: To keep inflation low and steady central banks would like
To keep inflation low and steady, central banks would like to keep output reasonably close to its potential level, but can they anticipate changes in potential GDP? Plot since 1960 the percent change from a year ago of the Congressional Budget Office’s estimate of potential GDP (FRED code: GDPPOT). Suppose that the FOMC assumed that the growth rate of potential GDP remained permanently at its 1960s average. What would you expect to happen to inflation? Why?
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