Question: 2. Use Okun's law to . . . (a) . . . rewrite the central bank loss function in a way that better reflects the

2. Use Okun's law to . . .

(a) . . . rewrite the central bank loss function in a way that better reflects the dual

mandate of the Federal Reserve in terms of unemployment and inflation, and . . .

(b) . . . then determine the value of in the central bank loss function that would

result in an equal weighting of the two terms in the dual mandate of the Federal

Reserve.

Okun's law: ut-uN = Cokun(yt-yP)

central bank loss function: L = yt-yP + (pi(t) - pi(T))^2

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