Suppose the Phillips curve is and the Aggregate Demand curve is Tt = T1 +3t tot...

 

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Suppose the Phillips curve is and the Aggregate Demand curve is Tt = T1 +3t tot Yt = at 5(πt -0.02) where at = Ot = 0 in the steady state. (a) Calculate the steady state values of output and inflation in this economy. (b) Calculate the short- and long-run responses of the economy to the following shocks (use a table to report your answers, as well as show them graphically on the AD-AS graph, as well as plot inflation and output against time): (1) A one-time decrease in oț to −0.05. (2) A one-time increase in at to 0.05 (at returns to 0 thereafter). (3) A permanent decrease in the Fed's inflation target from 0.02 to 0. Suppose the Phillips curve is and the Aggregate Demand curve is Tt = T1 +3t tot Yt = at 5(πt -0.02) where at = Ot = 0 in the steady state. (a) Calculate the steady state values of output and inflation in this economy. (b) Calculate the short- and long-run responses of the economy to the following shocks (use a table to report your answers, as well as show them graphically on the AD-AS graph, as well as plot inflation and output against time): (1) A one-time decrease in oț to −0.05. (2) A one-time increase in at to 0.05 (at returns to 0 thereafter). (3) A permanent decrease in the Fed's inflation target from 0.02 to 0.

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a To find the steady state Steady state Phillips curve t t1 y 0 Steady state Aggregate D... View the full answer