Federal Inflation Rate, Business Economics

Assignment Help:
Numerical Exercise 11.
Suppose that the Fed’s inflation target is 2 percent, potential output growth is 3.5 percent, and velocity is a function of how much the interest rate differs from 5 percent:
% ?V = 0.5 x (i – 5)
Suppose that a model of the economy suggests that the real interest rate is determined by the equation
R= 8.5 - % ?Y
Where Y is the level of output, so % ?Y is the growth rate of output. Suppose that people expect the Fed to hit its inflation target.
a. Calculate the optimal money growth rate needed for the Fed to hit its inflation target in the long run.


b. In the short run, if output growth is just 2 percent for two years and the equation determining the real interest rate changes to r = 4.5 - % ?Y, what money growth rate should the Fed aim for to hit its inflation target in that period?


c. If the Fed instead maintained the money growth rate from part a, what is likely to happen to inflation?

d. Which policy do you think is better in the short run? Which is better in the long run?

Related Discussions:- Federal Inflation Rate

Important to the success, Brand names can be important to the success of a ...

Brand names can be important to the success of a firm in some industries. Consider industries that demonstrate monopoly, monopolistic competition, oligopoly, and perfect competitio

What is unbalanced growth theory, What is Unbalanced Growth theory? Un...

What is Unbalanced Growth theory? Unbalanced growth shares analysis along with balanced growth theorists which free markets cannot produce development. Planning of government

Is the process inherently difficult when people are included, Persuading so...

Persuading someone to buy is a complicated process. Why is it? Is the process inherently difficult, or is it since so many people are included? Persuading is an affecting skill

Explain the relationship between scarcity, QUESTION (a) Explain the rel...

QUESTION (a) Explain the relationship between scarcity, choice and opportunity cost. (b) Distinguish between centrally planned, laissez-faire and mixed economic systems rega

Finacial Fiasco Book Review, Can anyone type me a paper on the book financi...

Can anyone type me a paper on the book financial fiasco? I will provide with a link to the book.

Find taxes that arise at a median voter, In a model where a continuum of in...

In a model where a continuum of individuals have preferences for consumption and leisure as follows w i = c i + ln(x i ) and individuals differ in their labour endowments e

Economic analysis, There, you can obtain the available data on GDP and its ...

There, you can obtain the available data on GDP and its components. a. What is the value of nominal GDP during the past 5 years? b. What is the GDP deflator in 2006? c. Wh

Ignou assingment, Calculate point elasticity of demand for demand function ...

Calculate point elasticity of demand for demand function Q=10-2p for decrease in price from Rs 3 to Rs 2

What do you mean by standard of living, What do you mean by standard of liv...

What do you mean by standard of living? Standard of living (SoL): It is incomer per capita (head) and it is determined by national income (GDP) divided through total pop

Methods of sustaining a competitive advantage, The framework for the assign...

The framework for the assignment should be relevant to the websites you have chosen and should consider one or two of the following: Segmentation methods to meet the needs of

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd