Contrast the adjustment process to the new equilibrium

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The firms and workers in Alpha form expectations adaptively. The firms and workers in Omega form expectations rationally. Their otherwise identical economies are initially in equilibrium at the natural level of output with 10 percent inflation. The central banks of both Alpha and Omega make credible commitments to reduce the growth of money until they achieve 2 per cent inflation. Compare and contrast the adjustment process to the new equilibrium at the lower rate of inflation in both countries.

Reference no: EM13219077

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