Our formulation of monetary policy has thus far assumed that the central bank can set the nominal interest rate in accordance with the outcome determined by the Taylor rule. However, since 2008 many central banks have hit the zero lower bound on nominal inter- est rates, limiting the stimulus they can provide. Consider a modified Taylor rule which obeys

Our formulation of monetary policy has thus far assumed that the central bank can set the nominal interest rate in accordance with the outcome determined by the Taylor rule. However, since 2008 many central banks have hit the zero lower bound on nominal inter- est rates, limiting the stimulus they can provide. Consider a modified Taylor rule which obeys

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Which of the following best describes the cause-effect chain of an expansionary monetary policy? A) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. B) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
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With a policy of nominal GDP targeting, if the Fed expected 6% growth in real GDP and wanted an inflation rate of 2%, it would set a target for nominal GDP growth of 8% per year. True False
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If we use the simple monetary policy rule R: = F + m(Tt – ñ), and the IS curve equation Yt = ā – b(R¢ – F), and inflation evolving according to the Phillips T +vÝt,with inflation expectations formed using T Curve equation: Tt %3D Tt-1. We observe: D = 0.5 marginal product of capital is 5%, target rate of inflation is 3%, the current rate of inflation is 6%, m = 0.6, b = 0.7: Solve for the rate of inflation at time t+1. Enter you answer in percent rounded to one decimal place, but do not use any % symbol. This means something like 4.3% would just be entered "4.3". Type your answer.
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Why is a public announcement of numerical inflationrate objectives important to the success of an inflationtargeting central bank?