Question: Question 6 Consider two alternative policies, A & B, each with a different set of outcomes in terms of output and inflation as shown in

Question 6 Consider two alternative policies, A & B, each with a different set of outcomes in terms of output and inflation as shown in the following table: Year (t) Output Inflation Rate Policy A Policy B Policy A Policy B 1000 1020 2.0 2.0 2 1000 1030 2.5 2.0 3 950 1040 1.0 2.0 Potential output remains constant at 1000 from year 1 to year 3. The central bank's loss function is Ev, + (wxx? ) ] where w =1, and the inflation target is 2%. time

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