In the dynamic model, the supply shock variable, υ , is a variable appearing in which of the following equations of the
T
Model?
A)Fisher equation
B)Phillips curve
C)monetary-policy rule
D)adaptive expectations

Question

Quizplus · Accepted Answer

The supply shock variable, υ, is typically included in the Phillips curve equation in the dynamic model. This is because a supply shock affects the level of prices and output in the short run, a relationship that is captured by the Phillips curve. The Fisher equation and monetary policy rule are typically related to the determination of interest rates and are not directly affected by supply shocks. Adaptive expectations can be incorporated throughout the model, but do not specifically relate to the supply shock variable.

In the Dynamic Model, the Supply Shock Variable, υ