Use the data in the following table to calculate the refinancing rate (1) using the Taylor rule, and fill in the last cell in table. Variable Value Equilibrium real refinancing rate (;*) 2% Four-quarter average inflation (x) 2% Inflation target (T) 1% Output (Y) Potential output (Y*) 11.5 12 Weight on the output gap (w1) Weight on the inflation gap (w2) 0.5 0.5 Refinancing rate (i) Suppose that the equilibrium real refinancing rate (r*) is 1% instead of 2%. Based on the Taylor rule and assuming everything else remains the same, how would this change the refinancing rate (i) you calculated in the previous question? The central bank should set the refinancing rate at 1.42%. The central bank should set the refinancing rate at -0.58%. For every percentage point lower the equilibrium real refinancing rate goes, the nominal refinancing rate should be 1 percentage point higher. Suppose the inflation rate over the last four quarters has been 3% instead of 2%. Assuming everything else is the same, what policy would the Taylor rule recommend? O Conservative policy O Tighter policy O Easier policy

Use the data in the following table to calculate the refinancing rate (1) using the Taylor rule, and fill in the last cell in table. Variable Value Equilibrium real refinancing rate (;) 2% Four-quarter average inflation (x) 2% Inflation target (T) 1% Output (Y) Potential output (Y) 11.5 12 Weight on the output gap (w1) Weight on the inflation gap (w2) 0.5 0.5 Refinancing rate (i) Suppose that the equilibrium real refinancing rate (r*) is 1% instead of 2%. Based on the Taylor rule and assuming everything else remains the same, how would this change the refinancing rate (i) you calculated in the previous question? The central bank should set the refinancing rate at 1.42%. The central bank should set the refinancing rate at -0.58%. For every percentage point lower the equilibrium real refinancing rate goes, the nominal refinancing rate should be 1 percentage point higher. Suppose the inflation rate over the last four quarters has been 3% instead of 2%. Assuming everything else is the same, what policy would the Taylor rule recommend? O Conservative policy O Tighter policy O Easier policy

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Inflation arises due to: Group of answer choices changes in real output, changes in nominal output, and changes in the unemployment rate. inflation expectations, potential output, and the non-accelerating inflation rate of unemployment (NAIRU). inflation expectations, demand-pull inflation, and cost-push inflation. the negative output gap, the positive output gap, and unexpected inflation.
In which situation is a program to reduce inflation likely to have the lowest costs? if the sacrifice ratio is high and the reduction is unexpected if the sacrifice ratio is high and the reduction is expected if the sacrifice ratio is low and the reduction is unexpected if the sacrifice ratio is low and the reduction is expected
There is no long-run trade-off between inflation and output because: Group of answer choices monetary policy makers will have adequately controlled unexpected inflation in the long run. fiscal policy makers will have adequately controlled unexpected inflation in the long run. in the short run, output and unemployment are not related. allowing inflation doesn't lead to sustainably higher output.
Suppose that the level of unemployment in the economy is determined by the follow equation: U = 7.55 1.88*(i - ie) Where U is the unemployment rate, i is the actual inflation rate, and it is the expected inflation rate. All variables are entered in percentage form (e.g. if inflation is 30.57%, you plug in 30.57 for i, not 0.3057). Last year, the inflation rate was 7.87%, and people have adaptive expectations. What does the inflation rate need to be this year in order for the unemployment rate to be 2.81%? Note: Everything is already in percentage form. You do not need to multiply or divide by 100 at any point. Enter in your answer as it is calculated in the equation. Round your final answer to two decimal places.
Consider the following 3-equation model: Y 108-2rCB +2(G-T) (1) rCB =4+1.5(\pi-\pi)+0.5(Y-Y) (2) \pi \pie+0.5(YY) (3) wherey isoutput, \pi isinflation, \pi e =\pi = 2, andY* = 100. Expected future inflation is \pi e, and Y-Y⚫ is the output gap. The variable rCB is the interest rate set by the central bank. We may interpret \pi as the central bank's inflation target. Government ex- penditure, G, and net taxes, T, are given and set by the government. (a) Which equation is the IS curve, and which is the New Keynesian Phillips curve? Provide a brief economic explanation for the relationship between \pi and \pi e in Equation (3). (b) Find inflation, output and interest rates when G = T = 5. (c) Now suppose G = 8.5 and T = 5. How are inflation, output and interest rates affected? Is the impact of the fiscal expansion on output magnified or reduced by monetary policy? Explain.
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Inflation target are based on the assessment of the monetary condition of the economy. *TRUE or FALSE
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Suppose gold (G) and silver (S) are substitutes for each other because both serve as hedges against inflation. Suppose also that the supplies of both are fixed in the short run and \{(:Q_{C}=300)\} and that the demands for gold and silver are given by the following equations: P_{G}=960-Q_{G}+0.50P_{S} and P_{S}=600-Q_{S}+0.50P_{G} What the the equilibrium prices of gold and silver? The equilibrium price of gold is S and the equilibrium price of silver is S Please explain and show work.
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The Fisher equation implies the real interest rate equals expected inflation expected inflation equals current inflation the nominal interest rate equals the real rate of inflation plus expected inflation the rate of inflation equals the real minus the nominal rates of interest none of the above
The text proposes the following model of expected inflation x = (1 - 0) x + 0,-1 What do we know about your process of the formation of expected inflation when 0 = 07 OA. Neither last year's inflation rate nor the long-run average inflation rate impact your view on this year's expected rate. OB. Last year's inflation rate will influence you to revise your estimates for this year's expected rate. OC. Regardless of what inflation was last year, you would expect it to be at the long-run average inflation rate this year. OD. Last year's inflation rate and the long-run average inflation rate have an equal impact on your view of this year's expected rate. What do we know about your process of the formation of expected inflation when 0-17 OA. Neither last year's inflation rate nor the long-run average inflation rate impact your view on this year's expected rate OB. Last year's inflation rate will be the only input for you to revise your estimates for this year's expected rate regardless of…