Use the Taylor Rule to predict the Fed's target for the Federal funds rate in the following situations: (L04) a. b. C. Inflation is 3%, which is 1% above the target; output growth is 4%, which is 1% above potential. Inflation is 2%, which is the target rate; output growth is 4%, which is 1% above potential. Inflation is 1%, which is 1% below the target; output growth is 2%, which is 1% below potential.

Use the Taylor Rule to predict the Fed's target for the Federal funds rate in the following situations: (L04) a. b. C. Inflation is 3%, which is 1% above the target; output growth is 4%, which is 1% above potential. Inflation is 2%, which is the target rate; output growth is 4%, which is 1% above potential. Inflation is 1%, which is 1% below the target; output growth is 2%, which is 1% below potential.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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d) Suppose the money demand function was of the following form: M^d / P = Y η What must the central bank do to achieve an inflation target of 2% over the long-run given a growth rate of income of 5% and an elasticity of money demand with respect to income of 0.8? You can assume that the real rate of interest, r, is fixed at 6%.
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Multiple Choice increase the interest rate from 6 percent to 8 percent. decrease the interest rate from 6 percent to 4 percent. decrease the interest rate from 6 percent to 2 percent. maintain the interest rate at 6 percent.
Suppose the Federal Reserve (the Fed) announces that it is lowering its target interest rate by 75 basis points, or 0.75%. It would achieve this by ______the ________. Use the green line (triangle symbols) on the preceding graph to illustrate the effects of this policy. Place the black point (plus symbol) on the graph to indicate the new equilibrium interest rate and quantity of money. The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows: Because there is__________money in the financial system, there is an excess _________ money at the initial equilibrium interest rate. Individuals and businesses adjust their asset portfolios by _______bonds. As a result, the price of bonds_________ , and the interest rate______ . This process continues until the new equilibrium interest rate is achieved.
Assume that the current interest rate is 4.0% and the economy is in a mild recession somewhat below YN. Using the model of Liquidity Preference, illustrate with a graph and short explanation how that equilibrium rate of 4.0% is determined. Now, assume the next move by the Fed at its December meeting is to raise the target rate of interest by 50 basis points out of a fear of future inflation. Illustrate this contractionary monetary policy graphically, first through liquidity preference, and then via IS-LM. Could this contractionary move by the Fed result in full employment? Why or why not?
Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that, due to increased instability in the financial markets, a decrease in investor and consumer confidence occurs. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose the Federal Reserve wants the economy to return to full-employment as quickly as possible. Should the Fed intervene? If so, show the impact of successful monetary policy on your graph. Label this new equilibrium point "3."
Given the Taylor rule equation below, what should the current Federal Reserve target value be for the fed funds rate (i_ff)? You will need to look up on FRED: 1) current inflation rate, p, and 2) current GDP growth rate, y; you should also assume that: 1) the current real rate of interest, r, is 0.15% (that is, 15/100 of a percent; almost zero!); the targeted inflation rate, p*, is 2%; and the targeted GDP growth rate, y*, is 2.75%
Suppose the Federal Reserve Bank decides to make an open market sale. The Fed’s sell order is matched with a buy order placed not by a bank but instead an individual or a non-bank corporation. The Fed sells $150 in US T-bills to the non-bank public. The buyer of the T-bills writes a $150 check to the Fed against his or her account at PNC Bank. Identify the balance sheet changes for each player involved. Do not enter dollar signs, just the number, and if negative place a negative in front. Non-bank public Securities: Currency: Deposits: PNC Securities: Reserves: Deposits: Borrowings: Fed Securities: Discount loans: Currency: Reserves: Monetary Base:
Q10 Refer to Figure 27-1. A rightward shift of the money demand curve can be caused by Question 10 options: an increase in the price level. a decrease in the price level. a decrease in real GDP. an increase in the rate of interest. Both (A) and (C) Note:- Please refrain from offering handwritten solutions. Please ensure that your response maintains accuracy and quality to avoid receiving a downvote. Take care of plagiarism. Answer completely. You will get up vote for sure.