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Use the model of dynamic aggregate demand and aggregate supply to graphically illustrate the impact of a permanent increase in the central bank's inflation target when the economy is initially at long-run equilibrium. Explain the time path of output and inflation in words.
Comparative Advantage
The ability of an individual, firm, or country to produce a certain good at a lower opportunity cost than its trading partners.
Total Output
Total output refers to the total value of all goods and services produced in an economy over a specific period.
Specialization
The process by which individuals or entities focus on producing a single or a few products or services, leading to increased efficiency and productivity in the economy.
Opportunity Cost
The economic consequence of overlooking the following preferred choice in making a decision.
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