Assume you are a member of the Federal Reserve, and you are adhering to the dual mandate. The economy reflects the following: 2018 CPI: 115 2019 CPI: 121.9 Potential GDP: $20 trillion 2019 Real GDP: $21 trillion Natural rate of unemployment: 4.00% 2019 unemployment rate: 3.50% Sketch a graph of the AD-AS Model. Be Sure to label all parts of the graph. Notate what type of gap you have and be sure to reflect it in your graph. What monetary policy tools can be used to fix the gap identified in part A? Assume you have adopted the Taylor Rule. Calculate the targeted federal funds rate if the equilibrium real federal funds rate and target rate of inflation is both 2%.
Assume you are a member of the Federal Reserve, and you are adhering to the dual mandate. The economy reflects the following: 2018 CPI: 115 2019 CPI: 121.9 Potential GDP: $20 trillion 2019 Real GDP: $21 trillion Natural rate of unemployment: 4.00% 2019 unemployment rate: 3.50% Sketch a graph of the AD-AS Model. Be Sure to label all parts of the graph. Notate what type of gap you have and be sure to reflect it in your graph. What monetary policy tools can be used to fix the gap identified in part A? Assume you have adopted the Taylor Rule. Calculate the targeted federal funds rate if the equilibrium real federal funds rate and target rate of inflation is both 2%.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Assume you are a member of the Federal Reserve, and you are adhering to the dual mandate. The economy reflects the following:
- 2018
CPI : 115 - 2019 CPI: 121.9
- Potential
GDP : $20 trillion - 2019 Real GDP: $21 trillion
- Natural rate of
unemployment : 4.00% - 2019 unemployment rate: 3.50%
- Sketch a graph of the AD-AS Model. Be Sure to label all parts of the graph. Notate what type of gap you have and be sure to reflect it in your graph.
- What
monetary policy tools can be used to fix the gap identified in part A?
- Assume you have adopted the Taylor Rule. Calculate the targeted federal funds rate if the equilibrium real federal funds rate and target rate of inflation is both 2%.
- Graphical demonstrate the effects your recommended change of the Federal Funds Rate has on the reserves market, the
money market , and the loanable funds market. Note that you should have three separate graphs, one for each market, but you do not have to worry about finding the quantity of reserves, money, or loanable funds.
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