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NK model Macroeconomics 2. Suppose the economy has sticky prices and the output gap and ination satisfy 1 . 931: = Et$t+1 (a) (it EtTFt-Il

NK model Macroeconomics

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2. Suppose the economy has sticky prices and the output gap and ination satisfy 1 . 931: = Et$t+1 (a) (it EtTFt-Il Ti) 7!} = 6Et7rt+1 + H1561. If it = a\"; , show that 1n = 7rt+1 = m = act+1 = 0 is an equilibrium. What problems might arise if the central bank decides to set its interest rate instrument according to the rule it = rtf

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