How inflation responds to output gap

Reference no: EM131777136

Question: We know that the AS curve is p = p e + 0.5(Y - Y * ) that is ?(how inflation responds to output gap) = 0.5,? (price shock) = 0.

Moreover we know:

- expected inflation=p e = 4.5

- potential output=Y * = 7 trillion

Aggregate demand curve= Y^AD= 14.8 trillion

(a) What is the short-run equilibrium level of output (Y )?

(b) What is the short-run equilibrium level of inflation (p)?

(d) What is the long-run equilibrium level of inflation (p)?

Reference no: EM131777136

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