What would the long run impact be on policy response

Reference no: EM131223328

Monetary policymakers observe an increase in output in the economy and believe it is a result of an increase in potential output. If they were correct, what would the appropriate policy response be to maintain the existing inflation target?

If they were incorrect and the increase in output resulted simply from a positive supply shock, what would the long-run impact be of their policy response?

Reference no: EM131223328

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