Question
Suppose that conditions are as in (b), when, in year t, the authorities use monetary policy to reduce the inflation rate to 4% in year
Suppose that conditions are as in (b), when, in year t, the authorities use monetary policy to reduce the inflation rate to 4% in year t and keep it there. Given this inflation rate and using the Phillips curve, what must happen to the unemployment rate in years t, t + 1, t + 2 and so on? Given the unemployment rate and using Okun's law, what must happen to the rate of growth of output in years t, t + 1, t + 2 and so on? Given the rate of growth of output and using the aggregate demand equation, what must be the rate of nominal money growth in years t, t + 1, t + 2 and so on?
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