Suppose that, initially, the price level is P1 and GDP is Y1, with no built-in inflation. The
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Suppose that, initially, the price level is P1 and GDP is Y1, with no built-in inflation. The Fed reacts to a negative demand shock by neutralizing it. The next time the Fed receives data on GDP and the price level, it finds that the price level is above P1 and GDP is above Y1. Give a possible explanation for this finding.
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The Fed may have incorrectly estimated the sensitivity ...View the full answer
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Related Book For 
Macroeconomics Principles and Applications
ISBN: 978-1111822354
6th edition
Authors: Robert E. Hall, Marc Lieberman
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