Question

The Fed rule equation is used to describe the interest rate behavior of the Fed. Briefly...

The Fed rule equation is used to describe the interest rate behavior of the Fed. Briefly describe what the Fed rule equation tells us about interest rate setting with respect to inflation and output?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Use the Fed rule-of-thumb to predict how the Fed would want to change the federal funds...
Use the Fed rule-of-thumb to predict how the Fed would want to change the federal funds rate and the real interest rate targets for each of the following scenarios if its estimate of the neutral real interest rate is 2%. a. A recession hits the economy leading output to be 0.75% below potential output and inflation to fall to 1%. b. An increase in consumer and business confidence pushes the economy to produce output at 2% above potential output while...
Recall the Taylor Rule for interest rate targeting. ? = ? ∗ + ? + ?(?...
Recall the Taylor Rule for interest rate targeting. ? = ? ∗ + ? + ?(? − ? ∗ ) + ?? ? Consider an economy where the equilibrium real interest rate is ? ∗ = 0.02 and the central bank’s target inflation rate is ? ∗ = 0.02. The central bank equally weights inflation and output deviations, i.e. ? = ? = 0.5 a. Suppose that inflation is currently 1.3%. Also, while the economy’s potential GDP is $12 trillion,...
Imagine you are the chief economist at the Fed and you are trying to convince the...
Imagine you are the chief economist at the Fed and you are trying to convince the Fed governor that she should follow the Taylor rule when setting the fed funds rate. "I don't like this Taylor rule," she says. "I think I can do better than the rule." "However, with the Taylor rule you do not have to think what to do. You just observe the inflation rate and the output growth, and set the interest rate accordingly," you say....
Use the Taylor rule to predict the Fed funds rate in each of the following situations....
Use the Taylor rule to predict the Fed funds rate in each of the following situations. a. Inflation is 3 percent, the inflation target is 4 percent, and output is 3 percent below potential. Instructions: Enter your response rounded to one decimal place. percent b. Inflation is 4 percent, the inflation target is 3 percent, and output is 3 percent above potential. Instructions: Enter your response rounded to one decimal place. percent c. Inflation is 4 percent, the inflation target...
Suppose a central bank decides to conduct monetary policy according to a rule for interest rates....
Suppose a central bank decides to conduct monetary policy according to a rule for interest rates. a) How does it choose the basic setting for the interest rate within the rule? b) How would it respond to a rise in the output gap (Y −YP)? c) How would the bank react to an inflation rate higher than its target inflation rate?
Given the following Taylor rule: Target federal funds rate = natural rate of interest + current...
Given the following Taylor rule: Target federal funds rate = natural rate of interest + current inflation + 1/2(inflation gap) +1/2(output gap); Explain what happens to the real interest rate and why it happens, each time inflation increases by 1 percent.
Use the following Taylor rule to calculate what would happen to the real interest rate if...
Use the following Taylor rule to calculate what would happen to the real interest rate if inflation increased by 5 percentage points. Target federal funds rate = Natural rate of interest + Current inflation + 1/2(Inflation gap) + 1/2(Output gap) If inflation goes up by 5 percentage points, the target (nominal) federal funds rate goes up by ? percentage points (? percentage points due to the direct impact of inflation and another ? percentage points due to an increase in...
Use the following Taylor rule to calculate what would happen to the real interest rate if...
Use the following Taylor rule to calculate what would happen to the real interest rate if inflation increased by 1 percentage points. Target federal funds rate = 2 + Current inflation + 1/2 (Inflation gap) + 1/2(Output gap) If inflation goes up by 1 percentage points, the target federal funds rate goes up by ___ percentage points ( ___ percentage points due to the direct impact of inflation and another __ percentage points due to an increase in the inflation...
Use the following Taylor rule to calculate what would happen to the real interest rate if...
Use the following Taylor rule to calculate what would happen to the real interest rate if inflation increased by 1 percentage points. Target federal funds rate = Natural rate of interest + Current inflation + 1/2(Inflation gap) + 1/2(Output gap) Instructions: Enter your responses rounded to one decimal place. If inflation goes up by 1 percentage points, the target (nominal) federal funds rate goes up by ? percentage points ( ? percentage points due to the direct impact of inflation...
A. Give the equation of exchange.  For each variable in the equation, explain or define it briefly....
A. Give the equation of exchange.  For each variable in the equation, explain or define it briefly. B. Since 2007 (quant. easing), many non-Keynesian economists (Classical) have been predicting a rapid increase in the inflation rate.  Why?  Use the equation in your answer. C. Why do Keynesian economists believe increasing the money supply is a good idea?  Use the equation in your answer. D.  Use the equation to explain or illustrate “Friedman’s Rule.” E. John Taylor had an opinion about one of the variables in...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT