Based on the Taylor Rule use the following information to calculate the target federal funds rate. Variable Target inflation rate Current inflation rate Real equilibrium federal funds rate Output gap In this case, the Federal funds target rate is: percent. (Round your solution to one decimal place.) Value 2 percent 5 percent 2 percent 1 percent

Based on the Taylor Rule use the following information to calculate the target federal funds rate. Variable Target inflation rate Current inflation rate Real equilibrium federal funds rate Output gap In this case, the Federal funds target rate is: percent. (Round your solution to one decimal place.) Value 2 percent 5 percent 2 percent 1 percent

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter27: Issues In Macroeconomic Theory And Policy

Section: Chapter Questions

Problem 5P

See similar textbooks

Similar questions

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.)
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%?
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.)
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)].
Consider the following Taylor rule i=0.02+0.75y+0.25(pi-2%) Notice that the central bank puts a higher policy weight on output than inflation. Imagine that inflation is 2%. How large should be the decline in output relative to the full-employment level for the central bank to hit the zero lower bound? A. 0.00% B. 1.27% C. 2.67% D. 4.00%
2 Based on the Taylor rule, a 1% rise in the inflation rate compared to a 1% rise in the output gap suggests the nominal federal funds rate should rise by 3 times as much. I understand that based on the Taylor rule, nominal federal funds rate have to rise by more than the inflation change, but why 3 times as much? The Taylor rule equation is nominal federal funds rate=long run real natural rate of interest+inflation+1/2(inflation-central bank's targeted inflation)+1/2(output gap).
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)
Do Monetarists and Keynesians believe that inflation is always and everywhere a monetary phenomenon? Explain your position with the aid of diagram(s).
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.
Briefly describe and explain how the Monetary Policy Committee (MPC) impactthe inflation rate?
Read “YOU’RE THE ECONOMIST: Did the Fed Cause the Great Recession?” in Chapter 26. In support of the Fed’s monetary policy prior to the deflation of the home prices bubble, one can argue that the reality is that increasing the money supply and low-interest rates were required to sustain expansion. Based on the Monetarist’s school of thought, criticize the Fed’s policy
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.