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Suppose the inflation rate of the economy is a constant 6% and the central bank has set an inflation target of 2% to 3%. Using
Suppose the inflation rate of the economy is a constant 6% and the central bank has set an inflation target of 2% to 3%. Using the expectations-augmented Phillips Curve framework, explain the process by which a disinflation monetary policy by the central bank can bring the rate of price inflation down to its target. What is the likely social cost of this policy and how can it be measured?
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