Suppose the economy today is producing output at its potential level and the inflation rate is equal
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Suppose the economy today is producing output at its potential level and the inflation rate is equal to its long-run level, with π̅ = 2%. What happens if policymakers try to stimulate the economy to keep output above potential by 3% every year? How does your answer depend on the slope of the Phillips curve?
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Dudhat Vaidehi
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