question archive Assume that there no surprises, with all economic agents and the central bank having full information about shocks that are hitting the economy
Assume that there no surprises, with all economic agents and the central bank having full information about shocks that are hitting the economy
Subject:EconomicsPrice: Bought3
Assume that there no surprises, with all economic agents and the central bank having full information about shocks that are hitting the economy.
1. Suppose there is a temporary decrease in TFP. Determine with the aid of diagrams the effects of this on aggregate variables? What should the central bank do in response, if it adopts a price level target? Explain.
2. Now, suppose that instead of a price level target, the central bank adopts a nominal GDP target. What should central bank do?
