Assuming the Fed is following the Taylor Rule, if inflation is 3 percent, target inflation is 2 percent, and output is 1 percent above potential, what would you predict would be the Fed funds rate target? Multiple Choice 6 percent 5 percent 5.5 percent 4 percent penting
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- Which kind of monetary policy would you expect in response to high inflation: expansionary or contractionary? Why?How does a monetary policy of inflation target work?Which 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 confidence
- 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? 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?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?Suppose that inflation is 2 percent, the federal funds rate is 4 percent, and real GDP falls 2 percent below potential GDP. According to the Taylor rule, in what direction and by how much should the Fed change the real federal funds rate?
- Use the Fed rule-of-thumb to predict the Fed's target for the federal funds rate for each of the following scenarios if its estimate of the neutral 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 inflation rises to 3.5%.Suppose 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. percentSuppose that inflation is 2 percent, the federal funds rate is 4 percent, and real GDP is 5 percent above potential GDP. According to the Taylor rule, in what direction and by how much should the Fed change the real federal funds rate? SEE PICTURE!!
- Suppose real GDP is forecasted to grow by 2.18%, the velocity of money has been stable, and the Fed announces an inflation target of 2.90%. What is the largest money growth rate the Fed could implement and still achieve its inflation target? Now suppose there is a mid-year revision of the GDP forecast that lowers the expected growth rate below 2.18%. Ceteris paribus, what impact will this lower growth rate have on the rate of inflation? O Inflation will be lower than originally expected. O Inflation will be the same as originally expected. Inflation will be higher than originally expected. Inflation can be either higher or lower than originally expected.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?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?