Suppose that the next FOMC meeting is coming up in a few days and the official inflation and output gap numbers have just been released. The current federal funds rate is 1.25%, the long-term fed funds rate target is 3.25%, and the inflation rate target is 2%. According to the release, inflation is currently at 1.25 percent and the output gap is -0.5 percentage points. Given the information above, the expected federal funds rate is _____ percent.

Suppose that the next FOMC meeting is coming up in a few days and the official inflation and output gap numbers have just been released. The current federal funds rate is 1.25%, the long-term fed funds rate target is 3.25%, and the inflation rate target is 2%. According to the release, inflation is currently at 1.25 percent and the output gap is -0.5 percentage points. Given the information above, the expected federal funds rate is _____ percent.

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter15: Monetary Policy

Section: Chapter Questions

Problem 8QP

See similar textbooks

Similar questions

With a current inflation rate of 1.8%, Real GDP = $23,450, and Potential Real GDP = $22,900, what is the appropriate Federal Funds Rate According to the Fed?
Suppose the actual federal funds rate is equal to the rate implied by a particular inflation goal. In this situation, the Taylor rule implies that
In 2003, as the U.S. economy finally seemed poised to exit its ongoing recession, the Fed began to worry about a “soft patch” in the economy, in particular the possibility of a deflation. As a result, the Fed proactively lowered the federal funds rate from 1.75% in late 2002 to 1% by mid-2003, the lowest federal funds rate on record up to that point in time. In addition, the Fed committed to keeping the federal funds rate at this level for a considerable period of time. This policy was considered highly expansionary and was seen by some as potentially inflationary and unnecessary. a. How might fears of a zero lower bound justify such a policy, even if the economy was not actually in a recession? b. Show the impact of these policies on the MP curve and the AD/AS graph. Be sure to show the initial conditions in 2003 and the impact of the policy on the deflation threat.
If the COVID-19 recovery continues and inflation starts to rise, what effect would a decision by the Fed to not change the federal funds rate target range have on the U.S. economy? If the Fed decides to leave the federal funds rate target range unchanged, we would expect _______. A. deflation to occur and the unemployment rate to increase B. the recessionary gap to increase C. potential GDP to increase and the full-employment quantity of labor to increase D. inflation to increase and the unemployment rate to decrease Thanks!
An increase in the expected rate of inflation will the expected return on bonds relative to the that on real assets, and shift the curve to the .
Compute the target fed funds rate if the equilibrium fed funds rate is 1% current inflation is 1% target inflation is 2% and the output is 2% below its potential level
Why is a public announcement of numerical inflationrate objectives important to the success of an inflationtargeting central bank?
Assuming that the aggregate supply in a given economy increases by 7.5 percent, whereas the velocity of circulation of money is fixed. If the targeted rate of inflation in the economy is 9.8, estimate what should be the percentage money supply, given that inflation is only a monetary phenomenon.
If the Fed decides to leave the federal funds rate target range unchanged, we would expect _______. A. deflation to occur and the unemployment rate to increase B. the recessionary gap to increase C. potential GDP to increase and the full-employment quantity of labor to increase D. inflation to increase and the unemployment rate to decrease
Over the past 12 years, Zambia has experienced an inflation rate of 9.8% per year. What does this suggest about the growth of Zambia's money stock according to the Quantity Theory of Money? Zambia's money stock has decreased by 9.8 percent per year over the past 12 years. Zambia's money stock has increased by 0.817 percent per year over the past 12 years. Zambia's money stock has increased by 9.8 percent per year over the past 12 years. Zambia's money stock has decreased by 0.817 percent per year over the past 12 years.
If the Fed indicates that inflation is likely to be a concern in the near future, the public would expect that it might Lower interest rates at its next meeting Not change interest rates at its next meeting Raise interest rates at its next meeting Lower interest rates before its next meeting Decrease the federal budget deficit at its next meeting
Calculate the Federal Funds rate for the following values of expected growth in real GDP and inflation. Assume that, as above, long-term real GDP growth is 3% and steady-state (or target) inflation is 2%. 1. Expected growth in real GDP = 5%; inflation = 5% 2. Expected growth in real GDP = 1%; inflation = 0% 3. Expected growth in real GDP = 3%; inflation = 2%