The new chairman of the Ionian Central Bank (ICB) is preparing for her first board meeting. She is expected to recommend a monetary policy for the board to pursue. She decides to use the Taylor rule, which was originally developed for the U.S. Federal Reserve. Ionia's potential GDP is 100 million drachma, but current GDP is 98 million. What is Ionia's output gap? Ionia's output gap: -2 Inflation is running at 4%, but the chairman considers an inflation rate of 3% to be a reasonable goal. What is Ionia's inflation gap? %

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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The new chairman of the Ionian Central Bank (ICB) is preparing for her first board meeting. She is expected to recommend a
monetary policy for the board to pursue. She decides to use the Taylor rule, which was originally developed for the U.S.
Federal Reserve.
Ionia's potential GDP is 100 million drachma, but current GDP is 98 million. What is Ionia's output gap?
Ionia's output gap: -2
Inflation is running at 4%, but the chairman considers an inflation rate of 3% to be a reasonable goal. What is Ionia's
inflation gap?
Ionia's inflation gap: 1
%
%
Transcribed Image Text:The new chairman of the Ionian Central Bank (ICB) is preparing for her first board meeting. She is expected to recommend a monetary policy for the board to pursue. She decides to use the Taylor rule, which was originally developed for the U.S. Federal Reserve. Ionia's potential GDP is 100 million drachma, but current GDP is 98 million. What is Ionia's output gap? Ionia's output gap: -2 Inflation is running at 4%, but the chairman considers an inflation rate of 3% to be a reasonable goal. What is Ionia's inflation gap? Ionia's inflation gap: 1 % %
fed funds rate.
inflation rate.
Calculate this target rate for Ionia, according to the Taylor rule.
target rate:
The current rate is 4%, so the chairman recommends
O buying securities.
O selling securities.
%
Transcribed Image Text:fed funds rate. inflation rate. Calculate this target rate for Ionia, according to the Taylor rule. target rate: The current rate is 4%, so the chairman recommends O buying securities. O selling securities. %
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