Suppose that actual inflation is 4 percent, the Fed's inflation target is 2 percentage points, and unemployment rate is 2 (which is 2 percent below the Fed's full- employment target of 4 percent). According to the Taylor Rule, what value will the Fed want to set for its targeted interest rate?
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- Suppose that actual inflation is 2.5 percent, the Fed's inflation target is 2 percentage points, and unemployment rate is 2.5 (which is 1.5 percent below the Fed's full-employment target of 4 percent). According to the Taylor Rule, what value will the Fed want to set for its targeted interest rate?What is specific interest rate the Fed is controlling to maintain a balance between economic growth and price stability (inflation)? Why has the Fed kept raising that interest rate recently? How (not just "what") does a rate increase affect (1) inflation and (2) economic growth, respectively?Given the Taylor rule equation below, what should the current Federal Reserve target value be for the fed funds rate (i_ff)? You will need to look up on FRED: 1) current inflation rate, p, and 2) current GDP growth rate, y; you should also assume that: 1) the current real rate of interest, r, is 0.15% (that is, 15/100 of a percent; almost zero!); the targeted inflation rate, p*, is 2%; and the targeted GDP growth rate, y*, is 2.75%
- 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%?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%Give typing answer with explanation and conclusion Suppose that actual inflation is 4 percent, the Fed's inflation target is 2.5 percentage points, and unemployment rate is 3.5 (which is 0.5 percent below the Fed's full-employment target of 4 percent). According to the Taylor Rule, what value will the Fed want to set for its targeted interest rate?
- With a policy of nominal GDP targeting, if the Fed expected 6% growth in real GDP and wanted an inflation rate of 2%, it would set a target for nominal GDP growth of 8% per year. True FalseA) Consider the Taylor rule: rt = (s1)[rt−1] + (s2)[rn + ayY˜+ aπ(πt πT )]. Assume target inflation at 2% and natural rate of interest at 1.8%. (a) If output gap increase by 1.5% and actual inflation to 4%, how much will be the interest rate increase from 2% if the central bank gives twice more weight to output gap as compared to inflation targeting weight of 0.5? Assume s1 = s2 = 0. [Write the Taylor rule first and then compute] b) Which component of this Taylor rule captures smoothness of interest rate changes? and How?Suppose that in 1980, the U.S. inflation rate was 13.5 percent and the unemployment rate reached 7.8 percent. Suppose that the target rate of inflation was 3 percent back then and the full-employment rate of unemployment was 5.5 percent at that time. What value does the Taylor Rule predict for the Fed’s target interest rate?
- Assume that the fed adopts an inflation-targeting strategy. if oil prices rive abruptly by 20percent in response to an oil shortage, describe how the fed's monetary policy would be affected by this situation. do you think the inflation-targeting would be more or less effective in this case than if the fed balances its inflation concerns with unemployment concerns? explain?Assume an economy’s annual money velocity in circulation is 10. Please answer the following two question: In the view of monetarists (i.e. neoclassical view), if the annual economic growth rate is 6%, what should be the money supply increasing rate to maintain a low inflation rate as 3%? Please show equation.In an economy, the money supply growth rate is 5.0%, the equilibrium real interest rate is 1.5%, the potential growth rate is 4.0%, the economic growth rate is 1.0%, the inflation rate is 3.0%, the unemployment rate is 4.5%, and the rate of increase in the circulation speed is -2%. In this case, in an economy that pursues an inflation target of 2.0%, what is the appropriate interest rate target based on Taylor's rule? (Omit the unit and answer with the first decimal place.)
