Use the Fed rule-of-thumb to predict the Fed's target for the federal funds rate and the real target interest rate t for each of the following scenarios if its estimate of the neutral real interest rate is 2%. a. A recession hits the economy, causing output to fall to 0.75% below potential output and inflation to fall to 1%. Federal funds target rate % Federal funds target rate b. An increase in consumer and business confidence pushes output to 2% above potential output, while inflation rises to 3.5%. Target real interest rate: % Target real interest rate: %

Use the Fed rule-of-thumb to predict the Fed's target for the federal funds rate and the real target interest rate t for each of the following scenarios if its estimate of the neutral real interest rate is 2%. a. A recession hits the economy, causing output to fall to 0.75% below potential output and inflation to fall to 1%. Federal funds target rate % Federal funds target rate b. An increase in consumer and business confidence pushes output to 2% above potential output, while inflation rises to 3.5%. Target real interest rate: % Target real interest rate: %

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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