The level of real aggregate demand for output in a macro

Reference no: EM13747158

Suppose the level of real aggregate demand for output in a macro economy is a negative function of the expected real interest rate- the nominal interest rate minus the expected inflation rete. Suppose also that the monetary authorities are setting the nominal interest rate and accommodating the private sector's demand for outside money, at that fixed nominal interest rate. Assuming adaptive inflation expenditure, exacerbating the shock? How could an interest-rate-setting monetary authority overcome this problem?

Reference no: EM13747158

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