Assume that inflation is 1% throughout the entire year and the inflation target is 2%. In which of the four panels the interest rate set by the central bank is inconsistent with the Taylor rule? O A. panel A B. panel B C. panel C D. panel D

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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QUESTION 6
Four panels in the figure below show four different evolutions of an economy's output over a year. In all figures, the solid line depicts the actual level of output, the dashed line stands for the full-employment output, and the markered line shows the interest rate set by the central bank.
Panel A
Panel B
102.50
0.06
0.05
101.00
100.80
102.00
0.05
0.04
100.60
100.40
101.50
0.04
0.03
101.00
0.03
100.20
0.02
100.00
99.80
100.50
0.02
0.01
100.00
0.01
99.60
99.40
99.20
99.50
99.00
-0.01
-0.01
actual output (left axis)
actual output (left axis)
full-employment output (left axis)
full-employment output (left axis)
• interest rate (right axis)
-interest rate (right axis)
Panel C
Panel D
101.00
0.04
101.00
0.04
100.00
100.50
0.03
99.00
0.03
98.00
100.00
0.02
0.02
97.00
96.00
99.50
0.01
0.01
95.00
94.00
93.00
92.00
99.00
98.50
-0.01
-0.01
actual output (left axis)
•actual output (left axis)
full-employment output (left axis)
full-employment output (left axis)
interest rate (right axis)
- interest rate (right axis)
Assume that inflation is 1% throughout the entire year and the inflation target is 2%.
In which of the four panels the interest rate set by the central bank is inconsistent with the Taylor rule?
O A. panel A
O B. panel B
OC. panel C
O D. panel D
Jan-20
Jan-20
Feb-20
Feb-20
Mar-20
Mar-20
Apr-20
Apr-20
May-20
May-20
Jun-20
Jun-20
Jul-20
Jul-20
Aug-20
Aug-20
Sep-20
Sep-20
Oct-20
Oct-20
Nov-20
Nov-20
Dec-20
Dec-20
Jan-20
Jan-20
Feb-20
Feb-20
Mar-20
Mar-20
Apr-20
Apr-20
May-20
May-20
Jun-20
Jun-20
Jul-20
Jul-20
Aug-20
Aug-20
Sep-20
E Sep-20
Oct-20
Oct-20
Nov-20
Nov-20
Dec-20
Dec-20
Transcribed Image Text:QUESTION 6 Four panels in the figure below show four different evolutions of an economy's output over a year. In all figures, the solid line depicts the actual level of output, the dashed line stands for the full-employment output, and the markered line shows the interest rate set by the central bank. Panel A Panel B 102.50 0.06 0.05 101.00 100.80 102.00 0.05 0.04 100.60 100.40 101.50 0.04 0.03 101.00 0.03 100.20 0.02 100.00 99.80 100.50 0.02 0.01 100.00 0.01 99.60 99.40 99.20 99.50 99.00 -0.01 -0.01 actual output (left axis) actual output (left axis) full-employment output (left axis) full-employment output (left axis) • interest rate (right axis) -interest rate (right axis) Panel C Panel D 101.00 0.04 101.00 0.04 100.00 100.50 0.03 99.00 0.03 98.00 100.00 0.02 0.02 97.00 96.00 99.50 0.01 0.01 95.00 94.00 93.00 92.00 99.00 98.50 -0.01 -0.01 actual output (left axis) •actual output (left axis) full-employment output (left axis) full-employment output (left axis) interest rate (right axis) - interest rate (right axis) Assume that inflation is 1% throughout the entire year and the inflation target is 2%. In which of the four panels the interest rate set by the central bank is inconsistent with the Taylor rule? O A. panel A O B. panel B OC. panel C O D. panel D Jan-20 Jan-20 Feb-20 Feb-20 Mar-20 Mar-20 Apr-20 Apr-20 May-20 May-20 Jun-20 Jun-20 Jul-20 Jul-20 Aug-20 Aug-20 Sep-20 Sep-20 Oct-20 Oct-20 Nov-20 Nov-20 Dec-20 Dec-20 Jan-20 Jan-20 Feb-20 Feb-20 Mar-20 Mar-20 Apr-20 Apr-20 May-20 May-20 Jun-20 Jun-20 Jul-20 Jul-20 Aug-20 Aug-20 Sep-20 E Sep-20 Oct-20 Oct-20 Nov-20 Nov-20 Dec-20 Dec-20
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