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3 Cards in this Set
- Front
- Back
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Express the PC equation |
Гt=ГEt/Гt-1+θ(yt-ye) θalfa: coef of y, measures the responsiveness of inflation to changes in the output gap. |
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Derive the MR curve |
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Explain the taylor principle |
The CB uses real interest rate to implement his policy. However it must adjust the nominal interest to achieve a desired real interest rate on the IS curve The real r is chosen to secure right level AD hence output. To deliver right AD=> set r=r(level shown at IS) IS: y= k(c0+a0+G)-ka1r y=A-ar Dynamic IS is used Yt= At-art-1 |
