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please, answer to all parts, it's 1 question! Suppose the loss function of the central bank is given by L(u, IT) = 0.5(ut - Un)
please, answer to all parts, it's 1 question!
Suppose the loss function of the central bank is given by L(u, IT) = 0.5(ut - Un) + 0.5m?. The Phillips curve is given by the following equation: It = n - 0.7(ut - un). a What is the optimal inflation rate chosen by the central bank if it operates under discretion? b) If individuals are rational and know the loss function of the central bank what would be their inflation expectations? c) What will be the unemployment rate? d) What would be the optimal inflation rate if the central bank operates under commitment and its targets are credible? What will be the unemployment rate? Explain
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