Author Question: Assume that targeted inflation is 1 percent. According to the Taylor rule, the federal funds rate ... (Read 45 times)

joesmith1212 · **on:** Jun 30, 2018

Assume that targeted inflation is 1 percent. According to the Taylor rule, the federal funds rate is:

a. equal to 2 percent if inflation and output are at their target level.
b. equal to 6 percent if inflation is 3 percent, output is at its target level and the Fed's targeted federal funds rate is 2 percent.
c. equal to 4 percent if inflation is 2 percent , output is 2 percent above its target level and the Fed's targeted federal funds rate is 2 percent.
d. none of the above are correct.

Question 2

According to the classical model, a 10-percent increase in the money supply, holding everything else constant, will lead to

a. a 10 increase in prices, a 10 increase in the real wage, and a 10 increase in interest rates.
b. a 10 increase in prices, a 10 increase in the money wage, and a 10 increase in interest rates.
c. a 10 increase in prices, a 10 increase in the money wage, and no change in interest rates.
d. a 10 increase in prices and no change in the money wage or interest rates.
e. none of the above.