The new chairman of the Ionian Central Bank (ICB) is preparing for her first board meeting. She is expected to recommend a monetary policy for the board to pursue. She decides to use the Taylor rule, which was originally developed for the U.S. Federal Reserve. Ionia's potential GDP is 100 million drachma, but current GDP is 94 million. What is Ionia's output gap?

The new chairman of the Ionian Central Bank (ICB) is preparing for her first board meeting. She is expected to recommend a monetary policy for the board to pursue. She decides to use the Taylor rule, which was originally developed for the U.S. Federal Reserve. Ionia's potential GDP is 100 million drachma, but current GDP is 94 million. What is Ionia's output gap?

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter8: Macroeconomic Equilibrium: Aggregate Demand And Supply

Section: Chapter Questions

Problem 16E

See similar textbooks

Similar questions

A politician is seeking re-election, having been in power for the last five years, andhas published the following pamphlet, which contains a number of statements.Explain how the information provided in the pamphlet may mislead people,even if the pamphlet does not contain any lies.1. Under five years of this government, we have worked hard to reduce the rate ofinflation. So for the last three years, the rate of inflation has been falling!Meanwhile, over the last three years wages have been rising!2. What’s more, the opposition complained that in our first two years in power, wereduced police numbers by 30%. Well, I’ve got news for them: we have not onlystopped them falling, but since then, we’ve increased police numbers by 35%!3. Not only that, but we are spending more money on the health service than everbefore! Billions and billions of pounds more!4. We’ve also cracked down on crime: the number of convictions for burglary hashalved in the last year, which must mean that there are…
After a series of measures to remedy the mortgage crisis that has beset the US economy, Ben Bernanke, chairman of the Board of Governors of the Federal Reserve and his colleagues are once again looking at cutting the central bank’s key interest rate as they hope that lowering the interest rates will give the economy a boost by encouraging investors and consumers to borrow and spend (Associated Press, n. pag.). The Fed is looking at slashing the interest rate by a full percent however, many economist believe that this is not the appropriate remedy for economic conundrum (Gavin, n. pag). According to many analysts, the issue of the economy regarding the mortgage is the lack of confidence by both the lender and the borrower. Even as the Fed resorts to drastic interest cuts, the first time the central bank has cut a full percentage point in one shot since 1982, this provides little help if lenders are not loaning money out of fear they will not be repaid and the borrowers…
A country has a total population of 79 million. The labour force in the country amounts to 47 million people. The current unemployment rate is 3.95%. The natural rate of unemployment is 4.2%. The marginal propensity to consume is 0.75. The current reserve ratio, which is applicable to all banks, is 6%. All banks tend to hold excess reserves of 3%. The current GDP deflator is 117. The current level of the consumer price index is 109. The intercept of the consumption function is 5200. The level of government expenditure is 6000. Potential GDP is at 43,000. Fixed taxes are at 3000. The economy is a closed economy. The level of investment is 2500. Transfer payments are at 3000. By how much should fixed taxes be changed in order to fix the GDP gap in this country? Selected Answer: Raise fixed taxes by approximately $700. Answers: Raise fixed taxes by approximately $933. Raise fixed taxes by approximately $700. Lower fixed taxes by approximately…
1. A reduction in income will cause a reduction in the interest rate. 2. In the wage-setting relation, the nominal wage tends to decrease when the unemployment rate decreases.3. If the output is too high, to achieve the medium-run equilibrium, the central bank will reduce policy rate.4. When in fiscal contraction consumption, output and the interest rate will decrease. Explain each statement whether T/F elaborately..
50. Why is the Keynesian "Paradox of Thrift ” actually no paradox at all ?
The new chairman of the Ionian Central Bank (ICB) is preparing for her first board meeting. She is expected to recommend a monetary policy for the board to pursue. She decides to use the Taylor rule, which was originally developed for the U.S. Federal Reserve. Ionia's potential GDP is 100 million drachma, but current GDP is 94 million94 million . What is Ionia's output gap? Ionia's output gap: % Inflation is running at 5%5% , but the chairman considers an inflation rate of 3% to be a reasonable goal. What is Ionia's inflation gap? Ionia's inflation gap: % The Taylor rule helps the chairman to determine the target discount rate. inflation rate. fed funds rate. Calculate this target rate for Ionia, according to the Taylor rule. target rate: % The current rate is 4%, so the chairman recommends buying securities. selling securities.
When a government reduces its deficits by increasing taxes, in the medium run,a. output returns to potential.b. IS curve shifts inward to the left.c. interest rate is higher.d. output increases. Explain..
Discuss: In the medium run, a fiscal expansion leads to an increase in the natural rate of interest.
125.) If the price level, P, is 16, money demand equal to money supply is $1,000, and the desired cash balance ratio, little k, is .25, what is real GDP? 4000 2000 250 15.625
After staying virtually flat for about a year and a half, the average lending rate of banks has started to show signs of decline in April after the Bank of Ghana reduced the monetary policy rate the month before. The Summary of Economic and Financial Data (May 2020) published by the Bank of Ghana has shown that average lending rate has finally moved out of its comfort zone to a step downward. Prior to recording 22.38 percent in April, the average lending rate has since the past 17 months (December 2018) not come below 23%.How would banks benefit when interest rates decrease?
(22) Assume that the economy begins in long-run equilibrium and that the federal reserve decides to use open market operations to sell bonds. In the short run, what happens to the level of GDP? Group of answer choices (A) It goes down. (B) It goes up. (C) It stays the same.
Expansionary fiscal policy refers to the ________ to increase real GDP. A. Federal Reserve's increasing the money supply and decreasing interest rates B. government's increasing spending and lowering taxes C. Federal Reserve's decreasing the money supply and increasing interest rates D. government's decreasing spending and raising taxes