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, thedashed line stands for the full-employment output, and the markered line shows the interest rate set by the central bank.Panel APanel B102.500.06101.000.05100.80100.60100.40100.20102.000.050.04101.500.040.03101.000.030.02100.500.02100.0099.800.01100.000.0199.6099.4099.2099.5099.00-0.01-0.01actual 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)Jan-20Feb-20Mar-20Apr-20May-20Jun-20Jul-20Aug-20Sep-20Oct-20Nov-20Dec-20Apr-20May-20Jun-20Jul-20Aug-20Sep-20Oct-20Nov-20Dec-20 Panel CPanel D101.000.04101.000.04100.00100.500.030.0399.0098.00100.000.020.0297.0096.0095.0094.0099.500.010.0199.0093.0092.0098.50-0.01-0.01-actual output (Ileft 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 BO C. panel CO D. panel DJan-20Feb-20Mar-20Apr-20May-20Jun-20Jul-20Aug-20Sep-20Oct-20Nov-20Dec-20Jan-20Feb-20Mar-20Apr-20May-20Jun-20Jul-20Aug-20* Sep-20Oct-20Nov-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 O C. panel C O 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 O C. panel C O D. panel D

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: Assume that the Reserve Bank of Australia have implemented contractionary monetary policy to bring…

A: The Phillips curve denotes a negative relation between the inflation rate and the unemployment rate.

Q: Consider a situation in which the natural rate of unemployment, u is 5%, and the central bank adopls…

A: Below is the given values: Natural rate of unemployment = 5%Reduction of inflation from 9% to 4%.

Q: QUESTION 3 The Federal Funds Market is actually monitored and manipulated by the Federal Reserve,…

A: 3) Individual investors are unable to invest in the federal funds market. It includes commercial…

Q: QUESTION 17 For this and the next two questions, use the growth-rate version of the equation of…

A: The quantity theory of money (or QTM in abbreviated form) is a theory explaining long-term…

Q: According to the quantity equation, if inflation is 0.1 percent, the growth rate of money is 7.3…

A: In economics, the velocity of money refers to the rate of exchange of money in an economy. It…

Q: What is the advantage of Fed transparency, the Fed's communication strategy since 2012, of clear…

A: In order to control and manage the money supply, interest rates, and the overall financial…

Q: Higher inflation Select one: O a. causes firms to change prices less frequently and makes relative…

A: * ANSWER :- *The OPTION B is correct answer * Explanation :-

Q: It is sometimes suggested that the Fed should try toachieve zero inflation. If we assume that…

A: According to the quantity theory of money, M x V = P x Y M= Money supply V = Velocity P = Price…

Q: In the presence of shocks, monetary policy cannot be used to stabilize both the inflation rate and…

A: In an economy, the effectiveness of monetary policy depends upon the market condition and the…

Q: In the money market, if there is excess is _________ the equilibrium interest rate. O a. supply of;…

A: Equilibrium in the market occurs at the intersection of demand and supply of real money balances…

Q: Which of the following pairs of events will definitely lead to a decrease in the equilibrium…

Q: Targeting inflation is better than monetary fine-tuning when time lags in the implementation of…

A: targeting inflation is the monetary tool used to maintain or achieve the inflation rate under…

Q: Which of the following would cause the suggested Taylor Rule Rate to decrease? On incroaee in the…

A: We have to find the cause the suggested Taylor Rule Rate to decrease .

Q: Consider the Taylor rule: r= ($₁)[rt-1]+($2)[+au+a(-¹)]. Assume target inflation at 2% and natural…

A: The benchmark interest rate set by the Federal Reserve is correlated with the rate of inflation and…

Q: What sort of event could lead to a simultaneous decrease in the rates of inflation and unemployment?…

A: Philips (PC) bend is a macroeconomic model that lays out a connection between expansion rate and…

Q: According to the Taylor rule, if the current inflation rate is 5 percent and the current…

A: The Taylor Rule is a guideline for central banks to set interest rates based on economic conditions.…

Q: If the growth rate of real GDP is 1%, the rate of inflation is 5%, and the grow supply is 6%, then,…

A: Quantity theory of money states the relationship between money supply, velocity, price level and…

Q: 19. Which of these statements is true according to the Keynesian (post-Keynesian) view a. Increases…

A: Keynesian believes that demand management is key to restore equilibrium in the economy. The economy…

Q: In the long run, monetary policy has an effect on... O a. All real economic variables. O b. The…

A: Monetary policy is the management of the quantity of money available in an economy as well as the…

Q: In March 2022, the Bank of Canada was concerned that the Canadian economy would continue to…

A: Here, it is given that the economy of Canada is experiencing an inflationary pressure. Due to…

Q: According to the Public Interest view, we should expect a political business cycle since the Fed…

A: Any kind of business cycle that is political involves an excessive spending/expansion of the nation…

Q: The speculative demand for money is: O A. positively related to interest rates O B. an active…

A: Meaning of Macroeconomics: The term macroeconomics refers to the situation of economic and…

Q: Suppose an economy is affected by a shock that reduces consumer wealth and simultaneously increases…

A: IS curve shows inverse relationship between real interest rate and output. Every point on IS curve…

Q: In which of the scenarios below would Fed decisions geared towards eliminating GDP gaps lead to a…

A: Inflation is defined as an increase in the price of goods and services purchased by households. The…

Q: inflation rate in 2018? 1) 2% O2) 4% 3) 6%

A: It can b defined as a method that helps measure the change (increase or decrease) in a specific…

Q: Inflation in Theoretica is currently below the target range of its central bank. What does this tell…

A: “Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: Suppose real GDP is forecasted to grow by 3.1%, the velocity of money is constant, and the Fed…

A: The quantity theory of money (QTM) given by Fisher states that there is direct and proportional…

Q: Suppose the bank reserve to bank deposit ratio decreases in the United States. Everything else held…

A: Meaning of Money Supply: The term money supply refers to the situation under which the overall…

Q: Suppose some banks decide to increase their holdings of excess reserves relative to deposits.…

A: As we know that the government can increase or decrease money supply through open market operations…

Q: Assume that the economy in a particular period is characterized by the following data: Actual…

Q: Which one of the following statements is false? O A. Liquidity preference model suggests that when…

A: The answer is - D. Liquidity preference model suggests that higher GDP growth leads to higher…

Q: If a central bank wants to make sure that its policy actions are successful in manipulating interest…

A: Central banks use tools such as rates of interest to make an adjustment to the supply of money to…

Q: With the inflation rate on the vertical axis and output on the horizontal axis, the long run…

A: The long-run aggregate supply curve is vertical because output is independent of the inflation rate.…

Q: On a new sheet of paper show the work for each question. Consider the IS-MP-PC Model. Draw a…

A: In an IS-MP-PC Model : IS -MP curve depict the locus of equilibrium points in both goods & money…

Q: shifts the Central Bank rule to the right. O a. An increase in the Z factors O b. A decrease in the…

A: A country's or a set of countries' central bank is a public organisation in charge of carrying out…

Q: If there is an inflationary gap in the Canadian prairies and a recessionary gap in Ontario, what…

A: An inflationary gap is basically a macroeconomic concept that describes the gap between current real…

Q: In the short-run monetary is less effective at increasing real output, when:

A: Monetary policy is a set of tools used by a country's central bank to promote long-term economic…

Q: Which of the following statements is true for the scenario illustrated in the below diagram? LRAS…

A: The government sets policies to stabilize economic activity. The major policies are fiscal and…

Q: The governor of the RBNZ announces that the economy is doing better than expected. He announces that…

A: The IS-LM model is used to determine the equilibrium interest rate and income level in the Keynesian…

Q: Using the simple monetary rule Rt-r=m(Tt-T), if m=0.5 and the inflatio rate is 2 percent below the…

A: The Taylor rule would result in the relation between the interest rate and the inflation rate which…

Q: Using the Taylor Rule, if the inflation rate is 2.5%, Equilibrium Real Federal Fund Rate is 2% and…

A: Taylor's rule, as proposed by American economist John B. Taylor, is a monetary policy instrument…

Q: Suppose the economy is initially in long-run equilibrium. The Fed decides to increase the required…

A: Required Reserve Ratio:The required reserve ratio is the proportion of deposits that banks are…

Q: During 2001-2004, the Fed injected additional reserves into the banking system, which reduced the…

A: Answer :- an increase in aggregate demand and real GDP. (Third Option )

Q: Questio Suppose the central bank in a hypothetical country Corearea uses "core" inflation for…

A: The question concerns monetary policy, more especially the method a central bank uses to target…

Q: Which of the following assumptions best characterized the assumption about how individuals formed…

Question

Panel C
Panel D
101.00
0.04
101.00
0.04
100.00
100.50
0.03
0.03
99.00
98.00
100.00
0.02
0.02
97.00
96.00
95.00
94.00
99.50
0.01
0.01
99.00
93.00
92.00
98.50
-0.01
-0.01
-actual output (Ileft 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
O C. panel C
O D. panel D
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
* Sep-20
Oct-20
Nov-20
Dec-20

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Explanation

VIEW

Answer

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

I advise you to graph this problem. If u=3% and u*=6%, Central bank that uses interest rates should target interest rate. This will result in LY and P. a. None of the answers offered are accurate. O b. increase; lower; higher O c. reduce; lower; lower O d. reduce; higher; higher O e. increase; lower; lower
In regard to monetary policies, nonactivists have various proposals. True or False: Some nonactivists believe in the Taylor rule, which suggests that the annual money-supply growth rate should be based on the growth rates of velocity and Real GDP to ensure that the price level does not fluctuate. O False O True Which of the following statements best explains the difference between the Taylor rule and the two other nonactivist rules (the constant-money growth rate rule and the predetermined-money growth rate rule)? O The Taylor rule does not take into account the stability of prices. O The Taylor rule suggests how much the money supply should grow. O The Taylor rule does not take into account the current state of the economy. O The Taylor rule is not a derivation of the equation of exchange.
In the short run, what would be the result of an increase in the monetary base? Assume the reserve ratio is unchanged. O a. Demand for money decreases. Ob. Demand for money increases. O c. Quantity demanded of money decreases. O d. Price level decreases. O e. Nominal interest rate falls.
In the context of our course long run "money neutrality" has which of the following implications? O In the long run monetary stimulus increases inflation and nominal GDP, but not real GDP O All the other options O The natural rate hypothesis means that monetary policy cannot affect the natural rate of unemployment O A central bank can manage demand-driven cycles in economic activity
Assume contractionary monetary policies have had the effect of lowering inflation rates from a 6% annual rate down to 2%. What do economists call this drop in inflation? O a. Deflation. O b. Inflation. O c. Devaluation. d. Depreciation. O e. Disinflation.
Monetary Policy (Taylor) Rule Question Can you please explain what the right answer is and how you solved it?
Assume that the current demand for goods depends on expectations in the IS-LM model. A monetary contraction in the current period will cause a leftward shift in the IS curve if: O O current and expected future real interest rates are positively related current and expected future real interest rates are negatively related monetary policy cannot affect, directly or indirectly, the position of the IS curve in the current period the central bank is expected to reverse any current movements in monetary policy in the future current and expected future real interest rates are unrelated
Suppose the money supply is $4 trillion; nominal GDP is $16 trillion; and real GDP is $12 trillion. Ceteris paribus, it follows that the price level is and the velocity is Select one: O a. 1.33 ; 4 O b. 3; 4 O c. 1.33; 3 O d. 4; 3
If the economy is currently experiencing 10% inflation, which Monetary Policy changes should the Federal Reserve implement (used)? Select all that apply O increase the reserve requirement O lower the reserve requirement O increase the discount rate O lower the discount rate O sell bonds on the open market O buy bonds on the open market O O O O O O
According to the Taylor rule, the federal funds target rate O a. increases; increases O b. increases; decreases Oc. decreases; increases O d. decreases; decreases as inflation increases and when GDP increases, all else equal
A period of inflation can be stopped by O A. increasing the growth rate of real output, to absorb consumer spending. O B. decreasing the money supply. O C. decreasing the interest rate, which causes aggregate demand to increase. O D. Answers A, B, and C all are correct. O E. None of the answers are correct.
The money stock grows by 15%, the real GDP grows by 2%, the velocity of circulation does not change. What will be the rate of inflation? 17.3% O 17% O 1.1739 O 12.74%