Suppose that a government imposes trade barriers that raise the domestic cost of production and lower potential

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Suppose that a government imposes trade barriers that raise the domestic cost of production and lower potential output. What would you expect to happen to inflation and output in the short run and the long run, assuming monetary policymakers only recognize the fall in potential output with a lag and keep their inflation target unchanged?

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Money Banking and Financial Markets

ISBN: 978-1259746741

5th edition

Authors: Stephen Cecchetti, Kermit Schoenholtz

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