Answer the Questions Below

question 96

Essay

Answer the questions below:
(A)Is there a unique rate of inflation that corresponds to long-run equilibrium? Explain. What determines the rate of inflation when the economy is at long-run equilibrium?
(B)Suppose the central bank is interested in stimulating growth in the economy. Should it aim for a higher or lower target inflation rate? Will higher growth be achieved in the short run and the long run?

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Definitions:

Recession Of 2001

A period of temporary economic decline during which trade and industrial activity were reduced, marked particularly by the bursting of the dot-com bubble.

Endogenous Factors

Internal factors that originate within an economic system or model and determine its behavior and state.

Exogenous Factors

External influences that can cause changes in an economic system, outside of the system’s control.

Price Shock Theory

A theory suggesting that sudden and unexpected changes in prices (typically upwards) can have significant adverse effects on an economy.