Evaluate your forecast in light of the lucas critique

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a. Use equations (3) and (4) to forecast both the price level and the level of output that result from the simple AS - AD model of Section 21-2. You may assume that the slope of the aggregate supply curve is 2⁄3; that the values of the money supply, velocity, and potential GDP are 9, 8, and 7, respectively; and that the expected price level is 5.

b. Evaluate your forecast in light of the Lucas critique.

c. How does this forecast differ from that which would result from a perfect-foresight model? d. Is this forecast better or worse? Explain.

Reference no: EM131136120

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