Question
Read the following conversation among three economists about the effects of a major pandemic on the economy: ECONOMIST 1: This health crisis is contractionary and
Read the following conversation among three economists about the effects of a major pandemic on the economy: ECONOMIST 1: "This health crisis is contractionary and disinflationary, but only in the short run." ECONOMIST 2: "The pandemic will have an inflationary effect that will make the central bank put the brake on the real economy. Most of the contractionary effect will be permanent." ECONOMIST 3: "This shock will not have any effect on inflation and, therefore, no consequences for monetary policy will follow."
evaluate the validity of each economist's claim, focusing on the effects on inflation, interest rates and GDP. Can you reconcile their different views? (12 points)
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