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Intermediate Macro Assignment | Homework For You

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Assume that expectations are adaptive, e.g. πe t = πt−1, and assume that π∗ = 0. Find the equilibrium values for the level of output and inflation in this economy at time t. Assuming no shocks in equilibrium, explain the effects on the equilibrium of a decrease in φπ. (Answer space: max 2 pages) (b)15 Suppose that at time t−1 inflation is zero and there …

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