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Unformatted text preview: ECON 202: Tutorial Assignment 8, 2010 To be discussed in tutorials in the week beginning Monday 4 th October. This assignment will NOT be graded. You should prepare written answers and be prepared to answer questions and participate in discussion at the tutorial session. Again, variables are as defined in Blanchard, and as used in lectures. In Blanchard (5th ed) Chapter 9, the following relationships are used to deduce the impact on the rates of unemployment, real output growth, and required rates of nominal and real money supply growth, when a Central Bank targets a lower or higher rate of inflation: t = e t- (u t - u n ) u t - u t-1 = - (- yt g y g ) = - t yt g mt g Assume u n = 6%, y g = 2%, = 1.0, = 0.6, and t denotes a year. Assume also that expectations of inflation are formed as follows: e t = t + (1- ) t 1 Suppose that in year 0, = 12% and u = 6% and that the Central Bank intends to reduce inflation to 3% by year 3. Assume the desired inflation path is as shown in the following...
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- Fall '10