When an aggregate demand shock hits the economy

Reference no: EM13236896

Suppose the Reserve Bank of Australia (RBA) observes directly aggregate demand shocks or fully anticipates them. Formulate a monetary policy rule that would insulate the economy from aggregate demand shocks. This monetary policy rule would keep inflation at the target rate and GDP at potential (i.e. on trend) when an aggregate demand shock hits the economy. What would this monetary policy rule be?

Reference no: EM13236896

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