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(Solved): t+1e=+(1)t(with0<<1) where is the central bank's announced ...

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where is the central bank's announced inflation target. This simple equation states that people's expectations for inflation at are a weighted average of last year's actual inflation rate and the central bank's currently announced target. We will use this equation to see how the size of determines the extent to which expectations are backward-looking. Consider the table below, which shows the data for a reduction in actual inflation from 12 percent to 2 percent. a. Assume that is equal to 0.2 . Compute expected inflation for each year and fill in the table at the right. (Round your responses to one decimal place. Enter your responses as percentage values.)

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Expected inflation is the projected rate of growth in the ov...
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