It is May 2008 and the Central Bank is confronted with a rising unemployment rate and rising inflation. Explain the dilemma faced by the Central Bank in May 2008.
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It is May 2008 and the Central Bank is confronted with a rising
by the Central Bank in May 2008.
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- N3 Give three reasons why a central bank may consider output to be a better target than inflation.Explain the main role of the central bank in the economy. In the discharge of it's important function what are the factors that it can controlIf real GDP is $18.9 Trillion, potiental real GDP is $18.8 Trillion, and the current inflation rate is 4.2%, what is currently happening in the economy and what FED response is expected?
- Suppose now that economists expect the velocity ofmoney to increase by 50% as a result of the monetarystimulus. What will be the total increase in nominalGDP?Suppose the statistical office of a country does a poorjob in measuring inflation and reports an annualizedinflation rate of 4% for a few months, while the trueinflation rate has been 2.5%. What will happen to thecentral bank’s credibility if it is engaged in inflation targeting and its target is around 2%?3. Answer all parts of this question.(a) Suppose that the central bank is at its bliss point where inflation is at its target and thereis no output gap. Suppose that the government writes a new law that imposes a higherinflation target for the central bank and this affects anticipated inflation. However, thelaw will not take effect for two years. In the meantime, the central bank pursues itscurrent goals, as specified by its loss function, given the current inflation target.Determine the effect of the news that the law has passed on the central bank’s currentpolicy, and on aggregate output and inflation. Use diagrams to explain your results.(b) Assume a two-period small open economy model where national income is 150 in thecurrent period and 140 in the future period. The world real interest rate is assumed to be4% per period. The representative consumer always wishes to set current consumptionplus government spending equal to future consumption plus governmentspending, (C+G=C′+G′),…
- Fiscal and Monetary Policies Consider that the elasticity of both inflation gap and unemployment gap equal to 0,5, by using Taylor rule answer the following questions: i) What should the Central Bank do if the current inflation rate is 2% higher than the target? ii) What should the central bank do if the unemployment rate is 4% higher than the natural rate? iii) Based on your answers to the above point (i) and (ii), provide a general conclusion regarding the Central Bank’s strategy facing the various macroeconomic conditions.The central bank of Trinidad and Tobago decides to pursue acontractionary monetary policy. Provide a table with the money supply data and inflationrate for Trinidad and Tobago for 2014 - 2019.Using equation of exchange explain what should central banks do to avoid long run inflation?
- 1) Inflation in Theoretica is currently below the target range of its central bank. What does this tell you regarding Theoretica’s likely output gap? Illustrate it using an AS-AD diagram, and briefly explain your diagram 2) Your mother states that lowering interest rates in the recessionary COVID-19 period is good policy because it will guarantee consumers will spend more as it is cheaper to borrow money. Do you agree or disagree with her statement? Provide two reasonings to justify your answer. 3) Is either helicopter money or quantitative easing preferred in times of severe recessions in order to boost economic activity? Explain your reasoning.The central bank of Trinidad and Tobago decides to pursue acontractionary monetary policy. Provide a table with the money supply data and inflationrate for Trinidad and Tobago for 2014 - 2019.Based on the data from Trinidad, do you agree with thecentral bank’s decision to pursue a contractionary monetary policy? Explain why orwhy not.The impact of Covid-19 pandemic on global economy is severe with negative projection for the year. Therefore, Central Bank has decided to decrease OPR (Overnight Policy Rate). Explain how this monetary policy will affect the economic performance during this pandemic.