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M&B3 3rd Edition by Dean Croushore
Edition 3ISBN: 978-1285167961M&B3 3rd Edition by Dean Croushore
Edition 3ISBN: 978-1285167961 Exercise 3
Consider three alternative policies, each with a different set of outcomes in terms of output and inflation, as shown in the following table:
Potential output is 500 in period 1 and rises 3 percent per year. The Fed's objective function is
where w = 1, and the inflation target is 2.0 percent.
a Calculate the value of the objective function over the five-year period for each of the three policies.
b Which policy is best Why Which policy is worst
c Would your answer to part b change if w = 5 Explain.
Potential output is 500 in period 1 and rises 3 percent per year. The Fed's objective function is
where w = 1, and the inflation target is 2.0 percent.
a Calculate the value of the objective function over the five-year period for each of the three policies.
b Which policy is best Why Which policy is worst
c Would your answer to part b change if w = 5 Explain.
Explanation
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M&B3 3rd Edition by Dean Croushore
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