- Question 3 20 Points Suppose That The Monetary Authority Observes A Increase In Real Gdp But Does Not Have Enough Info 1 (29.16 KiB) Viewed 37 times
- Question 3 20 Points Suppose That The Monetary Authority Observes A Increase In Real Gdp But Does Not Have Enough Info 2 (17.44 KiB) Viewed 37 times
Question 3 (20 points) Suppose that the monetary authority observes a increase in real GDP but does not have enough information to infer the sources of this growth. (a) (10 points) How would the central bank respond if it believed that GDP grew because of a positive shock to total factor productivity, and that real business cycle theory is correct? Explain your answer with the aid of diagrams.
(b) (10 points) How should the central bank respond if it believed that GDP increased because of a wave of optimism, and that the Keynesian coordination failure model is correct? Explain your answer with the aid of diagrams.