Assume you are a member of the Federal Reserve, and you are adhering to the dual mandate. The economy reflects the following: 2018 CPI: 115 2019 CPI: 121.9 Potential GDP: $20 trillion 2019 Real GDP: $21 trillion Natural rate of unemployment: 4.00% 2019 unemployment rate: 3.50% Sketch a graph of the AD-AS Model. Be Sure to label all parts of the graph. Notate what type of gap you have and be sure to reflect it in your graph. What monetary policy tools can be used to fix the gap identified in part A? Assume you have adopted the Taylor Rule. Calculate the targeted federal funds rate if the equilibrium real federal funds rate and target rate of inflation is both 2%. Graphical demonstrate the effects your recommended change of the Federal Funds Rate has on the reserves market, the money market, and the loanable funds market. Note that you should have three separate graphs, one for each market, but you do not have to worry about finding the quantity of reserves, money, or loanable funds.

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Answered: Assume you are a member of the Federal…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter14: Money And The Economy

Section14.1: Money And The Price Level

Problem 3ST

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Assume you are a member of the Federal Reserve, and you are adhering to the dual mandate. The economy reflects the following:

2018 CPI: 115
2019 CPI: 121.9
Potential GDP: $20 trillion
2019 Real GDP: $21 trillion
Natural rate of unemployment: 4.00%
2019 unemployment rate: 3.50%

Sketch a graph of the AD-AS Model. Be Sure to label all parts of the graph. Notate what type of gap you have and be sure to reflect it in your graph.

What monetary policy tools can be used to fix the gap identified in part A?

Assume you have adopted the Taylor Rule. Calculate the targeted federal funds rate if the equilibrium real federal funds rate and target rate of inflation is both 2%.

Graphical demonstrate the effects your recommended change of the Federal Funds Rate has on the reserves market, the money market, and the loanable funds market. Note that you should have three separate graphs, one for each market, but you do not have to worry about finding the quantity of reserves, money, or loanable funds.

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