What is mechanism design? Give at least two examples. What ...

[vicky]

What is mechanism design? Give at least two examples.
 
  What will be an ideal response?

Question 2

Suppose the equilibrium real federal funds rate is 3 percent, the target rate of inflation is 3 percent, the current inflation rate is 1 percent, and real GDP is 8 percent below potential real GDP.
 
  If the weights for the inflation gap and the output gap are both 1/2, then according to the Taylor rule the federal funds target rate equals
  A) -3 percent. B) -1 percent. C) 3.5 percent. D) 7 percent.

[huda]

Answer to Question 1

It is a branch of economic theory that studies how contracts or institutions can be designed in such a way as to align the objectives of two parties in a transaction. A piece- rate compensation method, for example, createsincentives for a worker to work hard, just as his or her superior wants. A co-payment in the health care industry encouragesmore careful use of health care, just as the insurance company wants.

Answer to Question 2

B

[vicky]

TYSM

[triiciiaa]

Excellent