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To keep inflation low and steady, central banks would like to keep output reasonably close to its potential level, but can they anticipate changes in
To keep inflation low and steady, central banks would like to keep output reasonably close to its potential level, but can they anticipate changes in GDP? Plot since 1960 the percent change from a year ago of the Congressional Budget Office's estimate of potential GDP (FRED code: GDPPOT) Suppose that FOMC assumed that the growth rate of potential GDP remained AT ITS LEVEL OF 1960 permanently at its 1960s average. What would you expect to happen to inflation? Why?
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