5 QUESTION 6Four panels in the figure below show four different evolutions of an economy's output over a year. In all figures, the solid line depicts the actual level of output, the dashed line stands for the full-employment output, and the markered line shows the interest rate set by the central bank.Panel APanel B102.500.06101.000.05102.000.05100.800.04100.60100.40101.500.040.03101.000.03100.200.02100.500.02100.0099.800.01100.000.0199.6099.5099.4099.00-0.0199.20-0.01actual output (left axis)actual output (left axis)full-employment output (left axis)- full-employment output (left axis)-interest rate (right axis)interest rate (right axis)-Panel CPanel D101.00100.00101.000.040.04100.500.030.0399.0098.0097.00100.000.020.0296.0095.0094.0093.009.500.010.0199.0098.50-0.0192.00-0.01actual output (left axis)actual output (left axis)- full-employment output (left axis)full-employment output (left axis)-- interest rate (right axis)•- interest rate (right axis)Assume that inflation is 1% throughout the entire year and the iflation target is 2%.In which of the four panels the interest rate set by the central bank is inconsistent with the Taylor rule?O A. panel AOB. panel BgC. panel CO D. panel DJan-20Jan-20Feb-20Mar-20Apr-20May-20Jun-20Jun-20Jul-20Jul-20Aug- 20Sep-20Sep-20Oc-20Oct-20Nov-20Dec-20Dec-20Jan-2007-uer07-ga-Mar-2007-JewApr-20Apr-20May-20May-20Jun-2007-unrJul-2007-in 207-anyAug-20Sep-2007-dasOt-20Oct-20Nov-20Dec-20Dec-20

*Answer: The Taylor Rule is a methodology for projecting interest rates that was developed by…

01.00 D0.50 0.03 100.20 100.00 99.80 99.60 99.40 99.20 0.02 0.02 0.01 00.00 0.01 09.50 09.00 -0.01 -0.01 - actual output (left axis) full-employment output (left axis) - actual output (left axis) full-employment output (left axis) -interest rate (right axis) - interest rate (right axis) Panel C Panel D 01.00 D0.50 0.00 09.50 9.00 08.50 0.04 0.04 101.00 100.00 99.00 98.00 97.00 96.00 95.00 94.00 93.00 92.00 0.03 0.03 0.02 0.02 0.01 0.01 -0.01 -0.01 -actual output (left axis) actual output (left axis) full-employment output (left axis) full-employment output (left axis) - interest rate (right axis) - interest rate (right axis) ume that inflation is 1% throughout the entire year and the inflation target is 2%. hich of the four panels the interest rate set by the central bank is inconsistent with the Taylor rule? A. panel A B. panel B C. panel C D. panel D Jan-20 Jan-20 Feb-20 Feb-20 Mar-20 Mar-20 Apr-20 Apr-20 May-20 May-20 Jun-20 Jun-20 Jul-20 Jul-20 Aug-20 Aug-20 Sep-20 Sep-20 Oct-20 Oct-20 Nov-20 Nov-20 Dec-20 Dec-20 Jan-20 Jan-20 Feb-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 I Sep-20 Aug-20 Sep-20 Oct-20 Oct-20 Nov-20 Nov-20 Dec-20 Dec-20

01.00 D0.50 0.03 100.20 100.00 99.80 99.60 99.40 99.20 0.02 0.02 0.01 00.00 0.01 09.50 09.00 -0.01 -0.01 - actual output (left axis) full-employment output (left axis) - actual output (left axis) full-employment output (left axis) -interest rate (right axis) - interest rate (right axis) Panel C Panel D 01.00 D0.50 0.00 09.50 9.00 08.50 0.04 0.04 101.00 100.00 99.00 98.00 97.00 96.00 95.00 94.00 93.00 92.00 0.03 0.03 0.02 0.02 0.01 0.01 -0.01 -0.01 -actual output (left axis) actual output (left axis) full-employment output (left axis) full-employment output (left axis) - interest rate (right axis) - interest rate (right axis) ume that inflation is 1% throughout the entire year and the inflation target is 2%. hich of the four panels the interest rate set by the central bank is inconsistent with the Taylor rule? A. panel A B. panel B C. panel C D. panel D Jan-20 Jan-20 Feb-20 Feb-20 Mar-20 Mar-20 Apr-20 Apr-20 May-20 May-20 Jun-20 Jun-20 Jul-20 Jul-20 Aug-20 Aug-20 Sep-20 Sep-20 Oct-20 Oct-20 Nov-20 Nov-20 Dec-20 Dec-20 Jan-20 Jan-20 Feb-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 I Sep-20 Aug-20 Sep-20 Oct-20 Oct-20 Nov-20 Nov-20 Dec-20 Dec-20

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

Chapter9: An Introduction To Basic Macroeconomic Markets

Section: Chapter Questions

Problem 5CQ

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