Question: 2) Consider the simple DSGE model with a Taylor Rule discussed in class. The model is summarized in PowerPoint 7 and consists of equations 1,

2) Consider the simple DSGE model with a Taylor Rule discussed in class. The model is summarized in PowerPoint 7 and consists of equations 1, 2, and 6. Assume, initially, that the output gap is zero and inflation is on target. In no more than 5 bullet points with one sentence each, explain a. what will happen to output and inflation if the government starts a program of fast and substantial increases in government expenditures. b. how the central bank is expected to react to smooth the business cycle and maintain economic stability

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Do not get married, wait until I come, etc.

Do not come to the conclusion too quickly

Engage everyone in the dialogue