What is the economic justification for the sticky inflation assumption?
economics
Description
Question 1:
a) What is the economic justification for
the sticky inflation assumption?
b) How does this assumption enable the
action of the Federal Reserve?
c) Why is Short Run Output measured in
percentage terms as opposed to absolute term?
d) Explain why we can think of full
employment and potential output as expressing the same thing.
e) Suppose you are in charge of the
Federal Reserve that has a goal of maintaining low inflation and to keep output
at potential. Are these appropriate goals for Monetary Policy? Explain.
