Inflation and output ratio

Reference no: EM1313824

Suppose that natural real GDP is constant. For every 1 percent increase in the rate of inflation above its expected level, firms are willing to increase real GDP by 2 percent. The output ratio is initially 100 and the inflation rate equals 2 percent.

What is the growth rate of nominal GDP in the economy?

An adverse supply shock raises the inflation rate associated with every output ratio by 3 percentage points.

Reference no: EM1313824

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