Suppose two countries have identical aggregate demandcurves and potential levels of output, and g is the samein both countries. Assume that in 2019, both countriesare hit with the same negative supply shock. Given thetable of values below for inflation in each country, whatcan you say, if anything, about the credibility of eachcountry’s central bank? Explain your answer.Country A Country B2018 3.0% 3.0%2019 3.8% 5.5%2020 3.5% 5.0%2021 3.2% 4.3%2022 3.0% 3.8%
Suppose two countries have identical aggregate demandcurves and potential levels of output, and g is the samein both countries. Assume that in 2019, both countriesare hit with the same negative supply shock. Given thetable of values below for inflation in each country, whatcan you say, if anything, about the credibility of eachcountry’s central bank? Explain your answer.Country A Country B2018 3.0% 3.0%2019 3.8% 5.5%2020 3.5% 5.0%2021 3.2% 4.3%2022 3.0% 3.8%
Chapter15: Macroeconomic Viewpoints: New Keynesian, Monetarist, And New Classical
Section: Chapter Questions
Problem 17E
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Question
Suppose two countries have identical aggregate demand
in both countries. Assume that in 2019, both countries
are hit with the same negative supply shock. Given the
table of values below for inflation in each country, what
can you say, if anything, about the credibility of each
country’s central bank? Explain your answer.
Country A Country B
2018 3.0% 3.0%
2019 3.8% 5.5%
2020 3.5% 5.0%
2021 3.2% 4.3%
2022 3.0% 3.8%
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