Suppose that two countries are similar except that one has a central bank with a higher target

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Suppose that two countries are similar except that one has a central bank with a higher target inflation rate. The two countries have identical potential GDP and are both at their long-run equilibrium. Explain this situation by using two diagrams with an aggregate demand curve and an inflation adjustment line. Explain how these different equilibrium levels of inflation are possible.

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Principles Of Macroeconomics

ISBN: 9781453334980

9th Edition

Authors: John B. Taylor, Akila Weerapana

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