Question: Suppose the basic New Keynesian model. There is a decrease in the future marginal product of capital. Use graphs to answer the followings. a. If

Suppose the basic New Keynesian model. There is a decrease in the future marginal product of capital. Use graphs to answer the followings.

a. If the Bank of Canada does nothing, what will be the effect on current inflation and on output?

b. Suppose that currently inflation is equal to the central bank's inflation target and there is no output gap. What should the central bank do?

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