QUESTION 6Four 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 APanel B102.500.060.05101.00100.80102.000.050.04100.60100.40101.500.040.03101.000.03100.200.02100.0099.80100.500.020.01100.000.0199.6099.4099.2099.5099.00-0.01-0.01actual 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 CPanel D101.000.04101.000.04100.00100.500.0399.000.0398.00100.000.020.0297.0096.0099.500.010.0195.0094.0093.0092.0099.0098.50-0.01-0.01actual 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 AO B. panel BOC. panel CO D. panel DJan-20Jan-20Feb-20Feb-20Mar-20Mar-20Apr-20Apr-20May-20May-20Jun-20Jun-20Jul-20Jul-20Aug-20Aug-20Sep-20Sep-20Oct-20Oct-20Nov-20Nov-20Dec-20Dec-20Jan-20Jan-20Feb-20Feb-20Mar-20Mar-20Apr-20Apr-20May-20May-20Jun-20Jun-20Jul-20Jul-20Aug-20Aug-20Sep-20E Sep-20Oct-20Oct-20Nov-20Nov-20Dec-20Dec-20

Taylor rule is used to predict how central banks should change interest rates due to changes in the…

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

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

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The Taylor rule is 2 + inflation rate + 1/2 output gap + 1/2 inflation gap. If inflation is 3%, the output gap is 1%, and the inflation gap is 1%, the target interest rate is 6%. 4%. 7%. 5%. O O O O
2. Create the T-entry for the Fed that goes together with the choice in the question above
Which of the following statements is true for the scenario illustrated in the below diagram? LRAS Price Level (base year = 100) 120 110 100 90 80 400 SRAS E₁ 700 Eo AD AD₁ 500 600 Real Output (constant dollars) 800 O it illustrates a recessionary gap at Eo Oit illustrates expansionary monetary policy by shifting ADO to AD1 O it illustrates procyclical monetary policy O it can be caused by a tightening of the money supply, also known as contractionary monetary policy
a. Suppose that the central bank wants to set policy rate (or real rate) at 4%. If expected inflation is 3%, this means that they must set the nominal interest rate to b. Now suppose that the zero lower bound has been reached and expected inflation is 3%. In this situation, the central bank cannot lower the real rate below: a) 7%; -3% b) 7%; 3% c) 4%; d) 1%; 1% 4%
One of the ways the Fed could implement a contractionary monetary policy is to: O A. Increase the money supply. B. Lower the required reserve ratio. C. None of these. O D. Buy T-bonds. E. Increase the discount rate.
4. A common rule used for describing the conduct of monetary policy is the Taylor π = r + 0.5 (²-³) + 0.5(π — ñ), where r is the real rate of rule, given by i interest and it is a target rate of inflation. Assume that the real interest rate at full employment to be constant at 2%. Assume also that the same 2% represents target inflation. a. What is the nominal interest rate i when inflation and output are at their equilibrium target level? b. Suppose that the central bank observes a rate of inflation of 4%. With all other variables at the same level. What is the nominal interest rate the central bank would target according to the Taylor rule?
Suppose the economy is initially in long-run equilibrium. The Fed decides to increase the required reserve ratio. In the short-run, this contractionary monetary policy will cause: O A. A shift from SRAS₂ to SRAS, and a movement to point B, with a lower price level and higher output. OB. A shift from AD₁ to AD₂ and a movement to point B, with a higher price level and higher output. O C. A shift from SRAS, to SRAS₂ and a movement to point A, with a higher price level and the same output. O D. A shift from AD₂ to AD, and a movement to point D, with a lower price level and lower output. 122 120- 118- 116- 114- 112- 110- 108- 106- 104- 102- 100- 98- 96- 94- 92- 90- -O 0 Price Level LRAS B 4 6 8 10 12 Real GDP (trillions of 2000 dollars) SRAS₂ SRAS₁ AD2 AD1 14 16
Question 52, 13.2 Questio Suppose the central bank in a hypothetical country Corearea uses "core" inflation for inflation targeting purpos K O A. makes inflation targeting harder because it is closely related to excess demand in the economy. O B. is irrelevant for inflation targeting because the central bank does not include the price of food in its targ O C. makes inflation targeting easier because it makes these problems less relevant. OD. is closely related to changes in core inflation, so the central bank uses it for targeting inflation. O E. would be offset by an increase in the Corearian dollar, making this price change irrelevant. Q RechercherQuestion 52, 13.2 Questio Suppose the central bank in a hypothetical country Corearea uses "core" inflation for inflation targeting purpos K O A. makes inflation targeting harder because it is closely related to excess demand in the economy. O B. is irrelevant for inflation targeting because the central bank does not include the price of…
Problem 3 (a) Suppose that when Jane is presented with the following two menus, her choices from them are as below 2 • When presented with the menu {6 units of apples, 5 units of bananas}, Jane chooses 6 units of apples. • When presented with the menu {7 units of oranges, 5 units of bananas}, Jane chooses 5 units of bananas. Suppose that Jane is then presented with the menu {7 units of oranges, 6 units of apples} What must Jane's choice be from this menu so that her behavior conforms to the axioms of rational choice? Explain. (b) Suppose that Frederick choices from the following menus are as follows • For any e > 0³, out of the menu {(4 + ɛ apples and 3 bananas), (5 oranges and 3 bananas)}, Frederick chooses (4 + ε apples and 3 bananas). • Out of the menu {(4 apples and 3 bananas), (5 oranges and 3 bananas)}, Fred- erick chooses (5 oranges and 3 bananas) What axiom of rational choice does Frederick's behavior evidently violate? Discuss.