Author Question: How might strict adherence to the Taylor rule discourage demand-pull inflation? How might ... (Read 55 times)

Deast7027 · **on:** Jun 30, 2018

How might strict adherence to the Taylor rule discourage demand-pull inflation? How might demand-pull inflation occur, nonetheless?

What will be an ideal response?

Question 2

To calculate value added, we need to subtract

A) only the cost of domestically-produced intermediate inputs.
B) only the cost of foreign-produced intermediate inputs.
C) the cost of domestic- and foreign-produced intermediate inputs.
D) total imports.

nickk12214 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The Taylor rule requires monetary policy to respond to both inflation and output gaps. If an attempt to lower unemployment results in rising inflation, policy acquires an anti-inflationary bias. Though the Taylor rule can prevent the persistence of demand-pull inflation, it might make brief episodes of inflation more likely. If policy makers underestimate the natural rate of unemployment, adherence to the Taylor rule guarantees that inflation will rise.

Answer to Question 2

C