Suppose the central bank took advantage of a temporary positive supply shock to lower its inflation target.

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Suppose the central bank took advantage of a temporary positive supply shock to lower its inflation target. Illustrate the impact of this change in the inflation target using an aggregate demand–aggregate supply diagram. Compare this with a chart of a situation where the central bank lowers its inflation target in the absence of a positive supply shock.

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Money Banking And Financial Markets

ISBN: 9781260226782

6th Edition

Authors: Stephen Cecchetti, Kermit Schoenholtz

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