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Permanent shift in the level

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Consider a one-time increase in the money stock by 3% relative to trend. Money supply initially grows at a constant rate of 2% per year. For one year, the money stock grows by 5% instead of 2%, and then returns to 2% growth. We may call this a temporary increase in the growth rate or equivalently a permanent shift in the level. How will inflation respond?

Reference no: EM131051096

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