Demonstrate and explain the full process

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Reference no: EM1347500

Use the AD/AS model to answer the following.

a. Demonstrate (and explain the full process) illustrate what happens when the central bank increases their long run target for inflation ( ). Assume the economy starts off producing at potential output levels and the target is raised from 2 percent to 3 percent.

b. Does this influence the average standard of living in this economy in the long run? Explain.

Reference no: EM1347500

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