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Goal of the monetary authority

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Reference no: EM132606961

Suppose that the goal of the fiscal authority is to set government spending so to achieve economic efficiency, while the goal of the monetary authority is to achieve stability of the price level over the long run. Assume the economy is initially in equilibrium and that there is a temporary decrease in the relative price of energy. Use diagrams to show that there are many ways in which the fiscal and monetary authority can achieve their separate goals. What could determine what fiscal and monetary policy settings are actually used in this context? Discuss.

Reference no: EM132606961

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