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QUESTION
IF reserve bank's policy reaction function is r = 0.02+ p, while the planned aggregate expenditure is PAE = 5000 + 0.8Y - 20000r, current inflation...
IF reserve bank's policy reaction function is r = 0.02+ p, while the planned aggregate expenditure is PAE = 5000 + 0.8Y - 20000r, current inflation rate is 0.05 and potential output (Y*) is 20000, then short run equilibrium is ___ and inflation rate will be ___ % when the economy returns to potential.
A. 17000 ; 5
B. 18000 ; 3
C. 17000 ; 3
D. 18000 ; 5
