Macroeconomics
4th Edition
ISBN: 9780393602487
Author: Jones, Charles I.
Publisher: W. W. Norton & Company
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Chapter 12, Problem 13E
To determine
Approximate class for a
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What Can the Fed Do about Inflation?
In the article by Thomas Hogan, we learn that Russia's invasion of the Ukraine nor the shortage or supply chain issues has not derived the main causes of inflation. (Hogan, 2022) The main cause for the issues that we have been facing come directly from the constant price changes and the monetary policy that is currently in place.
We learn that with Federal Open Market Committee (FOMC) has not adjusted their monetary policy, and have been raising the rates in such small increments that is causing the inflation to continue in an upward trend. What needs to occur is the FOMC needs to raise interest rates in greater scales in order the combat the inflation that is taking place and stabilize the price levels that are out there. (Hogan, 2022) What needs occur is that the Fed needs to come up with a policy that will allow for a predetermined path that slows down and regulating the money growth back to a safe place.
Having the guidance from the article…
It is time to take control of the Federal Reserve, which controls the U.S. money supply (M). In this chapter, we are thinking only about the “long run,” so real GDP (Y ) is out of the Fed’s control, as is velocity (v). The Fed’s only goal is to make sure that the price level (P) is equal to 100 each and every year. That is just known as “price stability,” one of the main goals of most governments. Fill in the missing values of M for the table.
Year
M
v
=
P
Y
1
25,000
2
100
500
2
4
100
500
3
4
100
400
4
4
100
200
5
2
100
400
6
1
100
600
Year 2, M =
Year 3, M =
Year 4, M =
Year 5, M =
Year 6, M =
An economy is currently experiencing inflation that exceeds the target rate set by the central bank. Explain the process in full detail by which the central bank can bring the inflation rate down.
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