Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 31, Problem 33APA
To determine
Identify the inflation expectation between 2009 2017.
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11.Draw a graph to illustrate and explain how "growing inflation expectations may become self- fulfilling.
5
Feds put $23.5 trillion back into the market, which Went back into the rising bill stock market. However, it was not enough to create stability. What other financial assets did the Fed buy in order to stabilize the market?
What did Fed by using quantitive easing 1, 2, and 3? How much did it cost? And how did it affect the market?
Inflation-indexed bonds Some bonds issued by the U.S. Treasury make payments indexed to inflation. These inflation-indexed bonds compensate investors for inflation. Therefore, the current interest rates on these bonds are real interest rates—interest rates in terms of goods. These interest rates can be used, together with nominal interest rates, to provide a measure of expected inflation. Let’s see how. Go to the Web site of the Federal Reserve Board and get the most recent statistical release listing interest rates (www. federalreserve.gov/releases/h15/Current). Find the current nominal interest rate on Treasury securities with a five-year maturity. Now find the current interest rate on “inflation indexed” Treasury securities with a five-year maturity. What do you think participants in financial markets think the average inflation rate will be over the next five years?
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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- How does a monetary policy of inflation target work?arrow_forwardHow does rule-based monetary policy differ from discretionary monetary policy (that is, monetary policy not based on a rule)? What are some of the arguments for each?arrow_forwardIs it preferable for central banks to primarily target inflation or unemployment? Why?arrow_forward
- Consider the scenario where you are the Chairperson of the Federal Reserve Bank. The US economy is experiencing a very high inflation rate of 8%. A) Will you increase or decrease interest rates to control inflation? B) If a stagnation in output accompanies inflation, what economic phenomenon is the US economy experiencing?arrow_forwardThe Fed has an obligation of the "full employment mandate". What is that exactly? How is it connected to the setting of interest rates?arrow_forwardWhat is disinflation? What are the two leading causes of inflation? Where online do you find inflation rate data?arrow_forward
- If the quantity of money grows at 7 percent a year, the velocity of circulation is constant, and real GDP grows at 6 percent a year, what is the inflation rate? The inflation rate is ____ percent a year Thank youarrow_forwardSuppose 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_forward5 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?arrow_forward
- The Fed is expected to raise the interest rate to nearly 5% in 2023. What is the impact of this policy on inflation and stock market? a. Inflation increases and stock prices increase b. Inflation increases and stock prices decrease a. Inflation decreases and stock prices increase b. Inflation decreases and stock prices decreasearrow_forwardCalculate 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%arrow_forwardIn 1 paragraph, provide 2 reasons for why the recent behavior of inflation is bad for the economy and why it is bad for banks in particular.arrow_forward
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