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 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.)

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter14: Money And The Economy

Section: Chapter Questions

Problem 2WNG

See similar textbooks

Similar questions

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.)
The Taylor Rule and inflation Suppose the initial inflation rate and inflation target are both 2%, that the real federal funds rate is 2%, and that the economy is at the full employment level of output. According the Taylor Rule, the federal funds target should be4% . Suppose now that the inflation rate changes to 4%. The Taylor Rule now prescribes that the federal funds target should be . Next, suppose that economists predict that the economy would be at full employment at a level of $14.00 trillion. However, the actual GDP in the United States is $12 trillion. Assuming that the inflation rate is still 4%, the Taylor Rule prescribes that the federal funds Expert Answer
Using the Taylor Rule, find the appropriate Federal Funds rate (FFR). Assume that the Fed has target inflation rate of 2% and a target GDP growth rate of 3%. What FFR should the Fed target if the current inflation is 5% and the growth rate is 4%?
Suppose that the equilibrium real overnight interest rate is 1 percent and the target rate of inflation is 1 percent. Use the following information and the Taylor rule to calculate the overnight interest rate target:_____% Current inflation rate:- 7% Potential real GDP:-$ 1.47trillion Real GDP:- $ 1.49 trillion
Use the following Taylor rule to calculate what would happen to the real interest rate if inflation increased by 1 percentage points. Target federal funds rate = Natural rate of interest + Current inflation + 1/2(Inflation gap) + 1/2(Output gap)Instructions: Enter your responses rounded to one decimal place.If inflation goes up by 1 percentage points, the target (nominal) federal funds rate goes up by____ percentage points (____percentage points due to the direct impact of inflation and another____percentage points due to an increase in the inflation gap). Consider the Fisher equation. Given the increase in the nominal interest rate you just calculated and the 1 percentage point increase in inflation we started with, the real interest rate must have increased by ____ percentage points
1).True or False: If the Fed undertakes expansionary monetary policy, it can retum the economy to its original inflation rate and original unemployment rate. 2).True or False: If the Fed undertakes expansionary monetary policy, it can return the economy to its original inflation rate and original unemployment rate. True False
Give typing answer with explanation and conclusion The Taylor rule sets the federal funds rate (FFR) according to INF (the inflation rate) and GAP (the output gap). What is the inflation that expresses this relationship? A. FFR = 0.5 + INF + 2(INF + 0.5) minus −2GAP B. FFR = 2 + INF + 0.5(INF minus −2) + 0.5GAP C. FFR = 2 + INF + 0.5(INF + 2) minus −0.5GAP D. FFR = 0.5 + INF + 2(INF minus −0.5) + 2GAP
In April 2020, as a result of the coronavirus -- along with the Governments’ “shuttering in” policies -- the United States experienced deflation, rising unemployment (from 4.4% to 14.7%) and falling GDP (annualized at a negative 4.8%). As a result, the Fed lowered the Federal Funds rate to zero percent (0%). The natural rate of unemployment in the United States is 4.5%. Assume that in May 2021, the inflation rate had increased to 2.6% (annualized) -- yet the inflation rate was expected to fall beneath 1.4% (annualized) beginning in July 2021 -- and the unemployment rate fell to 6% in the United States. As a result, the most likely policy for the Fed is to A. lower the targeted federal funds rate to a negative 1% (-1%) to be consistent with the ECB B. maintain the current targeted federal funds rate. C. increase the targeted federal funds rate consistent with the long run Phillips Curve D. increase the targeted federal funds rate…
In the figure above, assume that output is $10.5 trillion, while potential output is $12 trillion. If there is no policy intervention, we should expect ________. A) rightward shifts of IS & AD, so that both output and inflation rise B) a decrease in inflation to shift the MP curve, raising the real interest rate C) declines in both the inflation rate and the real interest rate as output rises D) a decrease in inflation to shift the AD curve, causing output to rise E) none of the above
Consider the following expressions: π = πe + ε(un − u) (1) L(u,π) = a(u − un) + π2 (2)1) Assign a label to expression (1) and (2) and interpret them in detail.2) Utilizing expression (1) and (2) find the optimal level of inflation under discretionary monetary policy outlook. Also interpret the derived value.
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.
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?