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1. Outline the main features of the New Keynesian model, explaining (i) the Aggregate Demand relationship; (ii) the Phil
Posted: Thu May 19, 2022 7:31 am
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1. Outline the main features of the New Keynesian model, explaining (i) the Aggregate Demand relationship; (ii) the Phillips Curve (or Aggregate Supply) relationship and (iii) the Taylor Rule; and discussing how monetary policy can affect inflation and the output gap in this model. Using your analysis, explain how a Taylor Rule can be derived as the optimal choice of policymakers in the New Keynesian model. How would the Taylor Rule be affected if the weight on inflation in the policymaker's loss function increased? ENG uc