Question: 5. Consider the following modification of the DAS and DAD model in class. a) Suppose the monetary…

30 Apr Question: 5. Consider the following modification of the DAS and DAD model in class. a) Suppose the monetary…

Posted at 17:54h in 2Past Paper by Exams

5. Consider the following modification of the DAS and DAD model in class. a) Suppose the monetary-policy rule has the wrong natural rate of interest. That is, the central bank follows this rule: where ρ, does not equal p, the natural rate of interest in the equation for goods demand. The rest of the dynamic AD-AS model is the same as in the textbook. Solve for the long-run equilibrium under this policy rule. (5pts) Suppose that the shock et were to increase permanently to a positive constant E. The rest of the dynamic AD-AS model is the same as in the textbook. Solve b) te rc e panie inflation rate return to its target in the long run? (5pts)

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