{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

10 r as set by rba 0 inflation inflation output y old

Info icon This preview shows pages 10–24. Sign up to view the full content.

View Full Document Right Arrow Icon
10 r as set by RBA 0 inflation ( ) inflation ( ) Output ( Y ) old policy reaction function AD AD’ new policy reaction function
Image of page 10

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Recap Week 9: Suppose in an economy PAE=5000+.75 Y -10000 r and the central bank acts according to the policy reaction function set out in the table. Rate of inflation (p) Real interest rate set by Central bank ( r ) 0.00 (=0%) 0.01 (=1%) 0.01 0.02 0.02 0.03 0.03 0.04 0.04 0.05 If inflation is 1%, the central bank will set a real interest rate of ____ % and short-run equilibrium output will equal _____. A. 0; 20 000 B. 1; 20 000 C. 1; 19 600 D. 2; 19 200
Image of page 11