Monetary policy rule, Consider an alternative simplified

Monetary policy rule

Assignment Help Business Economics

Reference no: EM131169413

Consider an alternative simplified version of the Taylor rule, where monetary policy depends only on short-run output: Rt-r= n(~Yt).

(a) Draw an IS-MP diagram, but instead of the usual MP curve, plot the simplified version of the Taylor rule. You might label this curve MPR for "monetary policy rule."

(b) Now consider the effect of a positive aggregate demand shock in the IS-MPR diagram. (An example might be a fiscal stimulus.) Compare and contrast the effect of this shock on the economy in the standard IS-MP diagram versus the IS-MPR diagram. Why is the result different?

Reference no: EM131169413

Questions Cloud

Environmentalists argue that we should protect environment : Environmentalists argue that we should protect the environment as much as possible, regardless of the cost involved. Which of the following is one of those costs?

To encourage the production of honey : To encourage the production of honey, several beekeepers place their beehives in a farmer's orchards and fields. As the bees gather nectar to make money, they pollinate the orchards and fields, thereby increasing the yields of the fruit and grain cro..

About marginal and average tax rates is correct : Which of the following statements about marginal and average tax rates is correct?

Compute the level of the nominal interest rate implied : Taylor Rule Consider the policy rule employed in the chapter: R-r= m(pit-pi), where we assume r= 2%;m= 1/2, and pi= 2%. Compute the level of the nominal interest rate implied by this rule when the inflation rate takes the following values: 10%, 5%, 2..

Monetary policy rule : Consider an alternative simplified version of the Taylor rule, where monetary policy depends only on short-run output: Rt-r= n(~Yt). Draw an IS-MP diagram, but instead of the usual MP curve, plot the simplified version of the Taylor rule. You might l..

Magnitude of the consumer surplus and producer surplus : Let the market for cigarettes be characterized by the following information: Calculate the magnitude of the consumer surplus and producer surplus in the pre- tax equilibrium. Calculate the tax revenue in the post-tax equilibrium. Calculate the chang..

Purpose of the lottery is to make everyone millionaire : Do you think the state has any intention of ever stopping the lottery, given the fact that the state relies on it to bring millions of dollars into its treasury? Is it possible that lottery can make everyone a millionaire? Is it ethical to suggest th..

Rental units reduce their maintenance expenditures : Why do the owners of rental units reduce their maintenance expenditures on the units when rent controls are imposed? Does their decision have anything to do with whether they can afford those expenditures?

What is the equivalent net present worth in actual dollars : A project needs an investment of $15,000 in year zero and is expected to generate a series of 5 equal annual net income of $8,000 each in constant dollars. The average inflation rate is 4%, and the market interest rate of 10%, what is the equivalent ..

User Account

All Pages