How will the central bank adjust the interest rate if it, Financial Management

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How will the central bank adjust the interest rate if it

In Given Figure, the central bank responds to an expenditure shock.

Suppose policymakers know the true slope of the AE curve but mismeasure the shock: they think the curve shifts to the right by 2 ?, twice the actual shift.

How will the central bank adjust the interest rate if it wants to keep output at potential? What will really happen to output? Explain.

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