EBK ECONOMICS
13th Edition
ISBN: 8220106799642
Author: PARKIN
Publisher: PEARSON
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Question
Chapter 31, Problem 35APA
To determine
Determine the output gap using Taylor rule.
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The Bank of Sweden inflation target is 2 % - which is a very common central bank goal. Why is it not zero percent?
Most central banks, like the Bank of England, set targets for their economy's inflation rate. The Bank of England has an inflation target of 3.5% per year. According to the Quantity Theory of Money, by how much must the Bank of England grow the money stock in order to hit its inflation target?
The Bank of England must decrease the money stock by 3.5% per year.
The Bank of England must increase the money stock by 3.5% per year.
The Bank of England must decrease the money stock by 3.5% per month.
The Bank of England must increase the money stock by 3.5% per month.
Suppose that actual inflation is 2.5 percent, the Fed's inflation target is 2 percentage points, and unemployment rate is 2.5 (which is 1.5 percent below the Fed's full-employment target of 4 percent). According to the Taylor Rule, what value will the Fed want to set for its targeted interest rate?
Chapter 31 Solutions
EBK ECONOMICS
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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- Suppose that you know the following information about the economy. The rate of change of the velocity of circulation is 0.5 percent per annum. Real GDP is growing by 1.0 percent per annum. What is the annual rate of inflation if the money supply is growing by 3.4 percent per annum? (Enter the numerical value only)arrow_forwardHyperinflation is extremely rare in countries where the Central Bank is independent of the rest of the government. Why is that?arrow_forwardSuppose that actual inflation is 2.5 percent, the Fed's inflation target is 2 percentage points, and unemployment rate is 3.5 (which is 0.5 percent below the Fed's full-employment target of 4 percent). According to the Taylor Rule, what value will the Fed want to set for its targeted interest rate? Instructions: Enter your answer rounded to 1 decimal place. percentarrow_forward
- In the Bank of England's Monetary Policy report published in February 2023, we can read: “Potential supply growth is estimated to have slowed to around 1.7% over 2010–19, from around 2.7% in the decade leading up to the financial crisis. This was driven by a very marked and sustained fall in productivity growth, much of which the [Monetary Policy Committee] has judged to be structural and therefore reflected in potential productivity. [...] Following the financial crisis, manufacturing productivity growth fell back sharply.” Use a labour market graph (Wage-Setting and Price-Setting) to represent the scenario described in the extract. In the graph, highlight what happens to equilibrium employment, unemployment and real wage and very briefly explain what this means for actual output in the UK economy. (50 words max)arrow_forwardThe central bank decided to raise interest rates when it wanted to reduce aggregate demand to fight inflation. How does an increase in interest rates reduce aggregate demand?arrow_forwardQ-1. You are the new Governor of State Bank of Pakistan after Reza Baqir. For each of the situations listed below, decide if you would use Easy-Monetary policy or Tight-Monetary policy. Explain each scenario within 150 words. Scenarios: RGDP dropped from 3 percent to 1 percent in the last year. Answer: The CPI and GDP deflator have risen 3 percent in the last six months. Answer: Commercial interest rates are rising, but the SBP has not raised rates. Answer: RGDP is growing steadily, and prices are rising sharply. Answer:arrow_forward
- Suppose that actual inflation is 4 percent, the Fed's inflation target is 2 percentage points, and unemployment rate is 2 (which is 2 percent below the Fed's full- employment target of 4 percent). According to the Taylor Rule, what value will the Fed want to set for its targeted interest rate?arrow_forwardYou are the new Governor of State Bank of Pakistan after Reza Baqir. For each of the situations listed below, decide if you would use Easy-Monetary policy or Tight-Monetary policy. (150 words.) Scenarios: RGDP dropped from 3 percent to 1 percent in the last year. The CPI and GDP deflator have risen 3 percent in the last six months. Commercial interest rates are rising, but the SBP has not raised rates. RGDP is growing steadily, and prices are rising sharply. The Pakistan is experiencing both high inflation and high unemployment. We are in a recession. Factory orders are down, and the economy appears to be slumping. Unemployment is low and prices are rising steadily. Unemployment rates are pushing 11 percent while the CPI has fallen from 8 percent to 2 percent growth. We are in a recession but are experiencing high inflation. The money supply appears to be tight, and prices are on the rise.arrow_forwardShould the Fed increase or decrease interest rate when the economy is in recession? What does the effect of that action have on (1) inflation and (2) economic growth, respectively?arrow_forward
- You are the new Governor of State Bank of Pakistan after Reza Baqir. For each of the situations listed below, decide if you would use Easy-Monetary policy or Tight-Monetary policy. Explain Scenarios: RGDP dropped from 3 percent to 1 percent in the last year. The CPI and GDP deflator have risen 3 percent in the last six months. Commercial interest rates are rising, but the SBP has not raised rates. RGDP is growing steadily, and prices are rising sharply. The Pakistan is experiencing both high inflation and high unemployment. We are in a recession. Factory orders are down, and the economy appears to be slumping. Unemployment is low and prices are rising steadily. Unemployment rates are pushing 11 percent while the CPI has fallen from 8 percent to 2 percent growth. We are in a recession but are experiencing high inflation. The money supply appears to be tight, and prices are on the rise.arrow_forwardThe Federal Reserve, the central bank of the United States, has an inflation target of 0.3% per month. According to the Quantity Theory of Money, by how much must the Federal Reserve grow the money stock in order to hit its inflation target? The Federal Reserve must decrease the money stock by 0.3% per year. The Federal Reserve must increase the money sock by 0.3% per year. The Federal Reserve must decrease the money stock by 0.3% per month. The Federal Reserve must increase the money stock by 0.3% per month.arrow_forwardSuppose the fed doubles the growth rate of the quantity of money in the economy. The increase in money growth will change?arrow_forward
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