Does a feedback fule that focuses on GDP growth have any impact on GDP level? It seems in Schweser (pg 189, graph b), these Is a decrease in Real GDP from point 0 to point 2, but i thought theoretically, GDP shouldn’t have impacted. Could someone explain this? Thx.
the argument of this example seems to be the following: if there is a decrease in potential GDP due to a decrease in productivity, increasing the money supply won’t help, and the sole effect will be to increase the price level. So GDP will not increase after the decrease (so the argument).