The initial inflation target was at level corresponding to, Finance Basics

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The initial inflation target was at level corresponding to

Consider Panel B of given figure, where the short-run equilibrium occurs at an output level below potential output, Yp.

Suppose that the initial inflation target was at the level corresponding to point 2, but the central bank chooses to stimulate demand to speed the adjustment to long-run equilibrium. What are the costs and benefits of such a policy?

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Finance Basics: The initial inflation target was at level corresponding to

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