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Suppose the Prime Minister decides to announce a new governor today of the central bank and that the latter does not appear very credible in
Suppose the Prime Minister decides to announce a new governor today of the central bank and that the latter does not appear very credible in its desire to fight inflation. Thus agents expect inflation to be higher in the future (without any other changes). We will model this as a rise in future expected inflation. 1. What is the impact on the IS curve of this in space (i, Y)? 2. What is the equilibrium impact on real GDP and of real and nominal interest rates? 3. Redo the analysis in space (r, Y)
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