Short run Philips Curve given real GDP, Inflation and Output ratio. Government policies (accommodating policy, neutral policy and extinguishing policy) and calculation of output ratio, inflation rate and growth rate of real and nominal GDP.
Suppose that natural real GDP is constant. For every 1 percent increase in the rate of inflation above its expected level, firms are willing to increase real GDP by 2 percent. The output ratio is initially 100 and the inflation rate equals 2 percent. If the government chose to follow an accommodating policy, what would be the new rate of inflation also the output ratio? The growth rate of nominal GDP?