Based on the Taylor Rule use the following information to calculate the target federal funds rate. Variable Value Target inflation rate Current inflation rate 2 percent 4 percent 2 percent Real equilibrium federal funds rate Output gap 6 percent In this case, the Federal funds target rate is: percent. (Round your solution to one decimal place.

Based on the Taylor Rule use the following information to calculate the target federal funds rate. Variable Value Target inflation rate Current inflation rate 2 percent 4 percent 2 percent Real equilibrium federal funds rate Output gap 6 percent In this case, the Federal funds target rate is: percent. (Round your solution to one decimal place.

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

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

Chapter14: Modern Macroeconomics And Monetary Policy

Section: Chapter Questions

Problem 10CQ

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suppose the the equilibrium real federal funds rate is 4 percent and the target rate of inflation of 3 percent. Use the following information and the Taylor rule to calculate the federal funds rate target.
Suppose that the equilibrium real federal funds rate is 5 percent and the target rate of inflation is 2 percent. Use the following information and the Taylor rule to calculate the federal funds rate target: Current inflation rate =7 percent Potential real GDP =$14.32 trillion Real GDP =$14.08 trillion The federal funds target rate is ______%. (Enter your response rounded to two decimal places.)
Suppose that the equilibrium real federal funds rate is 1 percent and the target rate of inflation is 3 percent. Use the following information and the Taylor rule to calculate the federal funds rate target: Current inflation rate =3 percent Potential real GDP =$14.24 trillion Real GDP =$14.77 trillion The federal funds target rate is %. (Enter your response rounded to two decimal places.)
Using the Taylor Rule, find the appropriate Federal Funds rate (FFR). Assume that the Fed has target inflation rate of 2% and a target GDP growth rate of 3%. What FFR should the Fed target if the current inflation is 5% and the growth rate is 4%?
First, write out the equation that represents the Taylor rule. Second, discuss how the Taylor rule is used to explain the implementation of monetary policy.
Economics Assess the following event on the assumption that policymakers are using the Taylor rule as a basis for policy changes, as specified in equation: r = 2 + 0.5(π – π^T) + 0.5(Y-Y^P). In 1973, the United States experienced an unexpected slowdown in productivity, which reduced potential output. Show how the real interest rate (r), output (Y), and inflation behave in the short-run and long-run. Explain and graph using MP, IS, and AD-AS graph to demonstrate. do not provide hand written solution
Draw an IS-MP diagram, but instead of the usual MP curve, plot thesimplifed version of the Taylor rule. You might label this curve MPR for“monetary policy rule.”
A) Using the original Taylor Rule where the equilibrium real rate of interest is estimated to be 2% and the target inflation rate is 2%, what is the federal funds rate implied by the Taylor Rule? b) Using the Mankiw Rule, what is the federal funds rate implied by the Mankiw Rule? c) According to the Taylor Rule, was the Fed being hawkish or dovish during this period? Explain and be specific with numbers. d) Relate your answer in part c) to the work done by Kydland and Prescott. e) Draw a reserve market diagram (reserve supply and reserve demand) locating the point associated with the actual federal funds rate on 1976-04-01 as point A. We don't know what value reserve supply is so just label as RS. Now assuming a stable reserve demand curve, explain and show what the Fed would have had to do to obtain the federal funds rate implied by the Taylor rule. Label this point as point B.
The text provides an illustration of Taylor interest rate rule first proposed in the early 1990s as an automatic way to conduct monetary policy. One version of this rule (for 1988 – 2008 data) is: Federal Funds Rate = 2.07 + 1.28 x (inflation rate) – 1.95 x (unemployment gap) For 2020, use an inflation rate of 2% and the unemployment gap is the difference between current unemployment (6.9%) and the natural rate of unemployment (UN) = 4.5%. (1) What is the current value of the Federal funds rate? (2) What does the Taylor Rule predict? (3) Is there a Phillips Curve relationship in the Taylor Rule? Explain by assuming a fixed federal funds interest rate of 5% and then double the rate of inflation (this is not a numerical calculation problem).
In the simple monetary policy rule considered in Chapter 13, what role does the parameter m_bar (letter “m” with a short bar above it) play? It stands for the rate of inflation It tells us how unemployment changes when output changes It governs how aggressively monetary policy responds to inflation None of the above (i.e., something else)
The focus of monetary policy nowadays is by using interest rate as an indicator. True False
Suppose that the current real federal funds rate in the economy is 2.0%, the current inflation rate is 1.0%, the Federal Reserve's target inflation rate is 2.0%, and the output gap is –2.0%. According to the Taylor Rule, how much should be the Federal Reserve's target federal funds rate? Please show your work. [Hint: According to the Taylor Rule, the FF Target = Real FF Rate + Inflation Rate + 0.5 (Inflation Gap) + 0.5 (Output Gap)].