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
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![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
101.00
0.05
100.80
100.60
100.40
100.20
102.00
0.05
0.04
101.50
0.04
0.03
101.00
0.03
0.02
100.50
0.02
100.00
99.80
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)
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1bf02234-c3b4-45f3-9f75-2755794c74b4%2F92cdcb30-06ed-49eb-8b8f-58bc99001987%2F3rekkaa_processed.png&w=3840&q=75)
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
101.00
0.05
100.80
100.60
100.40
100.20
102.00
0.05
0.04
101.50
0.04
0.03
101.00
0.03
0.02
100.50
0.02
100.00
99.80
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)
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
![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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1bf02234-c3b4-45f3-9f75-2755794c74b4%2F92cdcb30-06ed-49eb-8b8f-58bc99001987%2Flxte9z7e_processed.png&w=3840&q=75)
Transcribed Image Text: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
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