Module 7 quiz
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IS-PC-MP model exogeneous parameters
a0, a1, mpi, my, B
price level change variable
E pi
How will the economy evolve in period 2?
GDP gap, inflation & interest rate will begin to evolve back to their long run equilibrium values
if inflation is lower than target, the government should _________ government bonds
buy
inflation variable
pi
target inflation rate (variable)
pi^T
interest rate variable
r
natural interest rate (variable)
r bar
if inflation is higher than target, the government should ________ government bonds
sell
exogeneous parameters
variable that is not affected by others in the system
gdp gap variable
y
