What are the purposes of inflation targeting

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1. What factors shift the short-run aggregate supply curve? Do any of these factors shift the long-run aggregate supply curve? Why?

2. What are the purposes of inflation targeting and how does this monetary policy strategy achieve them?

3. Consider an economy described by the following: C' = 3.25 trillion; I' = 1.3 trillion; G' = 3.5 trillion; T' = 3.0 trillion; NX' = -1.0 trillion; f = 1; b = 0.75; d = 0.3; x = 0.1; ? = 1 and r' = 1.

A. Assume that ? = 1. What is the real interest rate, equilibrium level of output, consumption, planned investment, and net exports?

B. Suppose the Fed increases r' to r' = 2. Calculate what happens to the real interest rate, equilibrium level of output, consumption, planned investment, and net exports.

c. Considering that output, consumption, planned investment, and net exports all decreased in part c, why might the Fed choose to increase r'?

Reference no: EM13182939

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