According to the Taylor rule, the Federal Reserve should lower the federal funds rate when the apply.) A exchange rate rises. B. Fed's inflation rate target rises. c. inflation rate falls. D. Fed's long-run target for the federal funds rate falls. E output gap falls. (Check all that

According to the Taylor rule, the Federal Reserve should lower the federal funds rate when the apply.) A exchange rate rises. B. Fed's inflation rate target rises. c. inflation rate falls. D. Fed's long-run target for the federal funds rate falls. E output gap falls. (Check all that

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter29: Exchange Rates And International Capital Flows

Section: Chapter Questions

Problem 7SCQ: How would a contractionary monetary policy affect the exchange rate, net exports, aggregate demand,...

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According to the Taylor rule, the Federal Reserve should lower the federal funds rate when the
apply.)
A exchange rate rises.
B. Fed's inflation rate target rises.
c. inflation rate falls.
D. Fed's long-run target for the federal funds rate falls.
DE output gap falls.
(Check all that

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Consider the following: C = 400 + 0.5·(Y – T) I = 80 + 0.1·Y – 1000·(i – πe + x)NX = 0.01·Y*– 0.1·Y – 4·(E – 100) G = 600 T = 480 Y* = 20,000 The central bank anchored inflation expectations at target inflation rate of π̅= 0.02. Household borrowing rates and businesses include a 4% risk premium over policy rate (i) so: x - 0.04. The central bank has set policy rate equal to 2% (, ī = 0.02). The Exchange rate (E) is 100. Expected future exchange rate is also 100. a) Find short-run equilibrium level of output (Y) and trade balance (NX). Is there a trade deficit or surplus? b) Assume the governent cuts tax level to ?′ = 400. What is the new short run equilibrium level of output (?′) and trade balance (NX'). Is this economy suffering from twin deficits (trade and budget). What policy change could help?c) what is the value of the fiscal multiplier fromt he tax cut? if it were a closed economy would it be greater or smaller? d) What effects will the tax cuts have on investments and on the…
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