The Short-Run Aggregate Supply Curve Is π =

question 70

Essay

The short-run aggregate supply curve is π = + 0.8 (Y - 20)+ ρ.Suppose inflation last year was 5 percent,current output is 20,and there is a price shock of 2 percent.Suppose,further,that potential output rises next year to 21,while output remains at 20 and next year's price shock is zero.Calculate and explain next year's inflation.

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Definitions:

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