Author Question: Write out the expression for the Taylor rule. Use the Taylor rule to explain how a decline in real ... (Read 101 times)

bobthebuilder

  • Hero Member
  • *****
  • Posts: 567
Write out the expression for the Taylor rule. Use the Taylor rule to explain how a decline in real GDP below potential GDP will affect the Federal Reserve's target for the federal funds rate.
 
  What will be an ideal response?

Question 2

Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be
 
  A) 19 percent. B) 15 percent. C) 11 percent. D) 6 percent.



frankwu0507

  • Sr. Member
  • ****
  • Posts: 322
Answer to Question 1

The Taylor rule states that the Fed should set the federal funds target so that it is equal to: the real equilibrium federal funds rate + the current inflation rate + (w1 )  inflation gap + (w2 )  output gap. The inflation gap is the difference between the current inflation rate and the target rate. The output gap is the percentage difference between real GDP and potential GDP. The values w1 and w2 are weights determined by the Fed. If the growth rate in real GDP is below potential GDP, then the output gap will be negative. This will lower the federal funds target.

Answer to Question 2

C



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

Carbamazepine can interfere with the results of home pregnancy tests. If you are taking carbamazepine, do not try to test for pregnancy at home.

Did you know?

Medications that are definitely not safe to take when breastfeeding include radioactive drugs, antimetabolites, some cancer (chemotherapy) agents, bromocriptine, ergotamine, methotrexate, and cyclosporine.

Did you know?

It is believed that humans initially contracted crabs from gorillas about 3 million years ago from either sleeping in gorilla nests or eating the apes.

Did you know?

Over time, chronic hepatitis B virus and hepatitis C virus infections can progress to advanced liver disease, liver failure, and hepatocellular carcinoma. Unlike other forms, more than 80% of hepatitis C infections become chronic and lead to liver disease. When combined with hepatitis B, hepatitis C now accounts for 75% percent of all cases of liver disease around the world. Liver failure caused by hepatitis C is now leading cause of liver transplants in the United States.

Did you know?

Children of people with alcoholism are more inclined to drink alcohol or use hard drugs. In fact, they are 400 times more likely to use hard drugs than those who do not have a family history of alcohol addiction.

For a complete list of videos, visit our video library