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In: Economics

5) Philips curve and monetary policy a) Show on a graph how short-run and long-run Philips...

5) Philips curve and monetary policy

a) Show on a graph how short-run and long-run Philips curve relates to the ASAD model. How a shock to the aggregate supply can affect the Phillips curve? (11.3 marks)

b) Discuss Friedman’s idea of the long-run versus short-run Phillips curve by including the idea of natural unemployment rate and the role of expected inflation. What is the sacrifice ratio?

c) Explain the idea of rational expectations, inflation targeting, and the Taylor rule.

d) Briefly discuss the set-up and the rational of the Barro-Gordon model for the time inconsistency problem of monetary policy. Do not solve for the game, just explain.

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Rahul Sunny answered 8 months ago
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