Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 31, Problem 18APA
To determine
Determine the conflict among the Fed’s mandated policy goals.
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5 You are an FOMC member, and you know that, in the last few recessions, the Fed cut interest rates by around 500 basis points. As the pandemic loomed in early 2020, the bottom of the Fed Funds target range was at 1.5 percent (the Fed only had around 150bp room to cut), while PCE inflation (your favourite inflation measure) was near the 2 percent target. What other options were available to the Fed? How do they work?
1. By having such an influence on the economy, the Fed also indirectly affects your home's value and even your chances of being laid off or rehired.
True
False.
Give correct typed explanation.
1. The FED is facing a problem of inflation. What policy should be used? How would each of the tools at the FED's disposal be used?
2. The FED is facing a problem of unemployment. What policy should be used? How would each of the tools at the FED's disposal be used?
Chapter 31 Solutions
Macroeconomics
Ch. 31.1 - Prob. 1RQCh. 31.1 - Prob. 2RQCh. 31.1 - Prob. 3RQCh. 31.1 - Prob. 4RQCh. 31.2 - Prob. 1RQCh. 31.2 - Prob. 2RQCh. 31.2 - Prob. 3RQCh. 31.3 - Prob. 1RQCh. 31.3 - Prob. 2RQCh. 31.3 - Prob. 3RQ
Ch. 31.3 - Prob. 4RQCh. 31.4 - Prob. 1RQCh. 31.4 - Prob. 2RQCh. 31.4 - Prob. 3RQCh. 31.4 - Prob. 4RQCh. 31.4 - Prob. 5RQCh. 31 - Prob. 1SPACh. 31 - Prob. 2SPACh. 31 - Prob. 3SPACh. 31 - Prob. 4SPACh. 31 - Prob. 5SPACh. 31 - Prob. 6SPACh. 31 - Prob. 7SPACh. 31 - Prob. 8SPACh. 31 - Prob. 9SPACh. 31 - Prob. 10SPACh. 31 - Prob. 11SPACh. 31 - Prob. 12SPACh. 31 - Prob. 13SPACh. 31 - Prob. 14SPACh. 31 - Prob. 15SPACh. 31 - Prob. 16APACh. 31 - Prob. 17APACh. 31 - Prob. 18APACh. 31 - Prob. 19APACh. 31 - Prob. 20APACh. 31 - Prob. 21APACh. 31 - Prob. 22APACh. 31 - Prob. 23APACh. 31 - Prob. 24APACh. 31 - Prob. 25APACh. 31 - Prob. 26APACh. 31 - Prob. 27APACh. 31 - Prob. 28APACh. 31 - Prob. 29APACh. 31 - Prob. 30APACh. 31 - Prob. 31APACh. 31 - Prob. 32APACh. 31 - Prob. 33APACh. 31 - Prob. 34APACh. 31 - Prob. 35APACh. 31 - Prob. 36APACh. 31 - Prob. 37APACh. 31 - Prob. 38APACh. 31 - Prob. 39APACh. 31 - Prob. 40APACh. 31 - Prob. 41APA
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Similar questions
- A well-known economic model called the Phillips Curve (discussed in The Keynesian Perspective chapter) describes the short run tradeoff typically observed between inflation and unemployment. Based on the discussion of expansionary and contractionary monetary policy, explain why one of these variables usually falls when the other rises.arrow_forwardHow do expansionary, tight, contractionary, and loose monetary policy affect aggregate demand?arrow_forwardWhich one of these policies should the Fed engage in if unemployment is very high and inflation is under control? Select one: a. Buy government bonds through an Open Market Operation b. Print more money and give it directly to tax payers c. Lower corporate and income taxes d. Raise the discount rate e. Lower consumer confidencearrow_forward
- Does south china sea issue with respect to taiwan and other countries will make the world markets to collapse or fed again will be able to save the world with boosted asset purchases? Explain with detail 350 wordsarrow_forwardThe Fed used to set a single target for the federal funds rate before 2008. After 2008, it _______. Select one: does not set a target sets a target range that is 0.25 percentage points wide sets a target range that is 1.5 percentage points wide sets a target range that is 1 percentage points widearrow_forward1a.Name 2 or more tools that the Fed uses in conducting monetary policy. b.Describe how / why the Fed might use one of these tools.arrow_forward
- Suppose real GDP is forecasted to grow by 2.482.48%, the velocity of money has been stable, and the Fed announces an inflation target of 3.303.30%. What is the largest money growth rate the Fed could implement and still achieve its inflation target?arrow_forwardSuppose the current inflation rate is 5.8%, real gdp is $22.5 trillion and potential real gdp is $22 trillion. What is happening in the economy and what sort of Fed response would be expected?arrow_forwardhe Fed used to have three tools that they used to impact interest rates and economic activity, the reserve requirement, the discount rate, and open market operations. Now they have at least five tools, but they seem to have abandoned two of their original tools. What are the two new tools that they use? Why did they move away from two to the original three tools? Do you think the Fed is going down the right path? write 2 informative paragrahsarrow_forward
- This question is about interest rates and Fed policy.a) Define an interest rate. Define inflation, and then define real and nominal interest rates.b) In “normal” times (meaning, pre-2008), one of the main tools of the Fed was open market operations. What is the rate that the Fed would affect with this tool? What are expansionary and contractionary market operations?b) What would you want to do to the federal funds rate if the economy was in a recession? In an expansion?c) Suppose that the economy was in a recession, and the rate was close to 0. Would open market operations be effective?arrow_forwardThe NBER says the economy went from a peak in December 2007 to a trough in June 2009, until hitting a peak in the fourth quarter of 2019, then a trough in April 2020, and improving since then. Given this description of the dates of the business cycle, does the Fed’s policy of changing the discount rate make sense? Why or why not? Only typed answer and don't use chat gpt to solve the problemarrow_forward1 Suppose you are the Fed chair. The economy is experiencing inflation at a time of full capacity. You use the Taylor rule. Inflation is currently at 10%. The Fed's target rate is 2%. The economy is operating at 1% above its potential. What level of fed funds would you prescribe? 2. Given the above data, and further suppose the current fed funds rate is 4%, specify at least 3 tools of you would employ, and how you would employ them to achieve your goal? 3 What is a liquidity trap? What phase of the business cycle would you expect to encounter this? 4 Suppose that the target range for the federal funds rate is 4.75 to 5.0 percent but that the equilibrium federal funds rate is currently 5.25 percent. Assume that the equilibrium federal funds rate falls (rises) by 1 percent for each $120 billion in repo (reverse repo) bond transactions the Fed undertakes. If the Fed wishes to raise the equilibrium federal funds rate up to the bottom end of the target range, will it initiate…arrow_forward
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