Suppose that the equilibrium real federal funds rate is 6 percent and the target rate of inflation is 3 percent. Use the following information and the Taylor rule to calculate the federal funds rate target: Current inflation rate = 3 percent Potential real GDP = $14.66 trillion Real GDP $14.14 trillion The federal funds target rate is%. (Enter your response rounded to two decimal places.)

Suppose that the equilibrium real federal funds rate is 6 percent and the target rate of inflation is 3 percent. Use the following information and the Taylor rule to calculate the federal funds rate target: Current inflation rate = 3 percent Potential real GDP = $14.66 trillion Real GDP $14.14 trillion The federal funds target rate is%. (Enter your response rounded to two decimal places.)

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter14: Modern Macroeconomics And Monetary Policy

Section: Chapter Questions

Problem 10CQ

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Suppose that the equilibrium real federal funds rate is 1 percent and the target rate of inflation is 3 percent. Use the following information and the Taylor.rule to calculate the federal funds rate target: Current inflation rate 2 percent Potential real GDP $14.93 trilion Real GDP $14.11 trillion The federal funds target rate is%. (Enter your response rounded to two decimal places)
The Taylor Rule and inflation Suppose the initial inflation rate and inflation target are both 2%, that the real federal funds rate is 2%, and that the economy is at the full employment level of output. According the Taylor Rule, the federal funds target should be4% . Suppose now that the inflation rate changes to 4%. The Taylor Rule now prescribes that the federal funds target should be . Next, suppose that economists predict that the economy would be at full employment at a level of $14.00 trillion. However, the actual GDP in the United States is $12 trillion. Assuming that the inflation rate is still 4%, the Taylor Rule prescribes that the federal funds Expert Answer
Suppose the inflation rate target is zero and the long-run federal funds target is also zero. If the inflation rate is 4 percent and the output gap is ‒2 percent, the federal funds rate set by the Taylor rule is ________. 5 percent 6 percent 2 percent 8 percent Robert is a doctor who earns an average hourly wage of $80. His wife is a teacher and earns an average hourly wage of $35. His daughter works in her college library and earns $12 per hour, while his son is a lawyer and earns $60 per hour. If one of them must stay at the house on a working day to look after their ailing pet, who can do it at the lowest opportunity cost? Robert Robert's wife Robert's daughter Robert's son Edward lives in England, and he makes a donation of $100,000 to a charitable organization in the United States. Edward's donation will be considered ________. a subsidy foreign aid a transfer payment to foreigners a factor payment to foreigners Everything else equal, if a country has exports of $15…
Use the following Taylor rule to calculate what would happen to the real interest rate if inflation increased by 1 percentage points. Target federal funds rate = Natural rate of interest + Current inflation + 1/2(Inflation gap) + 1/2(Output gap)Instructions: Enter your responses rounded to one decimal place.If inflation goes up by 1 percentage points, the target (nominal) federal funds rate goes up by____ percentage points (____percentage points due to the direct impact of inflation and another____percentage points due to an increase in the inflation gap). Consider the Fisher equation. Given the increase in the nominal interest rate you just calculated and the 1 percentage point increase in inflation we started with, the real interest rate must have increased by ____ percentage points
Now go to FRED and search for PCEPI. This is the price index that receives the most attention from the Federal Reserve in terms of fulfilling the nominal part of their dual mandate. Calculate the most recent rate of inflation (12 months) using PCEPI to the nearest two decimal places and compare to the Fed's implicit target of inflation = 2%. Is inflation too high, too low, or just right (circle your answer)? TPCE Too high Too low Just right
Suppose that the equilibrium real federal funds rate is 4 percent and the target rate of inflation is 2 percent. Use the following information and the Taylor rule to calculate the federal funds rate target: Current inflation rate = 6 percent Potential real GDP = $14.83 trillion Real GDP = $14.58 trillion The federal funds target rate is %. (Enter your response rounded to two decimal places.)
Suppose the federal government decides to cut the corporate profits tax. Everything else held constant, this action causes the output gap to become and the inflation rate to _- For the real GDP to return to its potential level, the Fed should the federal funds rate. Select one: negative; increase; decrease positive; increase; increase negative; decrease; decrease positive; decrease; increase
Suppose that the equilibrium real overnight interest rate is 1 percent and the target rate of inflation is 1 percent. Use the following information and the Taylor rule to calculate the overnight interest rate target:_____% Current inflation rate:- 7% Potential real GDP:-$ 1.47trillion Real GDP:- $ 1.49 trillion
Supposed that followed by an unexpected discovery of new oil reserves there is a reduction in oil prices. What policy suggestion makes it possible to keep the inflation rate at its rate prior to the discovery without changing the target for federal funds rate? A)An increase in income taxes. B)An across the board decrease in corporate profit taxes. C)An open market purchase if reserves are scarce. D)An increase in ONRRP rate.
Economists sometimes argue that moderate inflation may help the economy by making wages in labor markets more ["", "", ""] . The discussion in the text pointed out that wages tend to be sticky in their downward movements and that unemployment can result. A little inflation could nibble away at ["", ""] wages, and thus help real wages to ["", ""] if necessary. In this way, even if a moderate or high rate of inflation may act as sand in the gears of the economy, perhaps a low rate of inflation serves as oil for the gears of the labor market. This argument is controversial. A full analysis would have to account for all the effects of inflation. It does, however, offer another reason to believe that, all things considered, very low rates of inflation may not be especially harmful.
Real Interest Rate, r (percent) F G K Inflation Rate, (percent) 10. Referring to the graph above, a movement from point F to point G might represent A. H to I B. K to G C. G to J D. I to H E. K to F A. the automatic response of monetary policy to an increase in the inflation rate B. the increase in the inflation rate that occurs when the real interest rate rises C. an autonomous tightening of monetary policy D. any of the above E. none of the above 11. On the graph above, which pair of points best represents the impacts in the U. S. of autonomous easing of monetary policy at the Onset of the 2007-2013 Financial Crisis? 12. The IS curve is Y = 30 - 2r, and the aggregate demand curve is Y = 18 - T. Then, the monetary policy curve is