Suppose a central bank targets an inflation rate of 3%. She projects a long-term economic growth rate of 4%. a. Using the Classical Theories, suggest an appropriate long-term monetary policy. State the necessary assumptions. b. Suppose the new Chairman of the central bank will assume his duty next year. He is widely expected to be a “monetary hawk” – he favors a “tighter” growth in money supply. Other things being constant, how would this affect the expected inflation rate, nominal interest rate and the current general price level? Using relevant Classical Theories, briefly explain your answers.
Suppose a central bank targets an inflation rate of 3%. She projects a long-term economic growth rate of 4%. a. Using the Classical Theories, suggest an appropriate long-term monetary policy. State the necessary assumptions. b. Suppose the new Chairman of the central bank will assume his duty next year. He is widely expected to be a “monetary hawk” – he favors a “tighter” growth in money supply. Other things being constant, how would this affect the expected inflation rate, nominal interest rate and the current general price level? Using relevant Classical Theories, briefly explain your answers.
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter35: The Short-Run Trade-off Between Inflation And Unemployment
Section: Chapter Questions
Problem 5PA
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Suppose a central bank targets an inflation rate of 3%. She projects a long-term
a. Using the Classical Theories, suggest an appropriate long-term
State the necessary assumptions.
b. Suppose the new Chairman of the central bank will assume his duty next year.
He is widely expected to be a “monetary hawk” – he favors a “tighter” growth in
money supply.
Other things being constant, how would this affect the expected inflation rate,
nominal interest rate and the current general
Theories, briefly explain your answers.
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