Given the above formula for Taylor rule and the below description of inflation rate,, inflation gap and output gap, the target federal fund rate can be found as:
Target inflation rate | inflation rate | inflation gap | output gap | Federal fund target rate |
1% | 4% | -3% | 4% | 6.5% |
1% | 4% | -3% | -4% | 2.5% |
Under such a rule, the Fed will set lower real interest rate whenever output is lower than potential GDP
6. The Taylor rule Aa Aa Economist John B. Taylor found empirically that the Federal Reserve (the...
According to the Taylor Rule, the Fed will increase Federal Funds rate if there is -positive output gap or negative inflation gap -negative output gap or positive inflation gap -positive output or positive inflation gap -negative output or negative inflation gap
Use the Taylor rule to: Calculate the target for the federal funds rate for October 2012, using the following information: equilibrium real federal funds rate of 2%, target inflation rate of 2%, current inflation rate of 1.2%, and a (negative) output gap of 5.9%. In your calculations, the inflation gap is negative if the current inflation rate is below the target inflation rate. How does the targeted federal funds rate calculated using the Taylor rule compare to the actual federal...
Using the Taylor rule, calculate the target for the federal funds rate for July 2010 using the following information: Equilibrium real federal funds rate 2% Target inflation rate 2% Current inflation rate 0.9% Output gap -6%The target for the federal funds rate for July 2010 is _______ %. (Enter your response rounded to two decimal places and include a minus sign if necessary) In your calculations, the inflation gap is negative if the current inflation rate is below the target inflation rate. How does the...
The Taylor rule specifies how policymakers should set the federal funds rate target. Suppose that U.S. real GDP rises 3% above potential GDP, all else constant. According to the Taylor rule, the Fed should (raise lower) the federal funds rate target by (1.75%,1.25%,1.5%,2%) . Suppose instead that the U.S. inflation rate rises by 3%, all else constant. According to the Taylor rule, the Fed should (raise,lower) the federal funds rate target by (4.5%,4.75%,5%,4.25%) . 1. The opportunity cost of holding...
8. Federal funds rate targeting Aa Aa In conducting monetary policy, the Federal Open Market Committee (FOMC) targets a Federal funds rate and the Federal Reserve Bank of New York uses open-market operations to achieve and maintain the target rate. Suppose that the following graph shows the demand for Federal funds. Use the orange line (square symbols) to plot the supply of Federal funds (also called "the supply of excess reserves") when the FOMC targets a Federal funds rate of...
a. What does the Taylor Rule imply that monetary policymakers should due to the Federal Funds Rate under the following scenarios? Please explain your answer using the information in the Taylor Rule. (Hint: you may want to start with the equation for the Taylor Rule.) The Taylor Rule: 1. Unemployment rises due to a recession. 2. An oil price shock causes the inflation rate to rise by 1% and output to fall by 1%. 3. The Fed decreases its target...
Use the following Taylor rule to calculate what would happen to the real interest rate if inflation increased by 7 percentage points. Target federal funds rate = Natural rate of interest + Current inflation + 1/2(Inflation gap) + 1/2(Output gap) Use the following Taylor rule to calculate what would happen to the real interest rate if inflation increased by 7 percentage points. Target federal funds rate = Natural rate of interest + Current inflation + 1/2(Inflation gap) + 1/2(Output gap)...
According to the Taylor Rule, if the inflation rate is 3 percent and the GDP gap is 2 percent, what does the federal funds rate target equal? Group of answer choices 8.5 percent 5.5 percent 3.5 percent 6.5 percent
Question 47 0.1 pts According to the Taylor Rule: if the inflation rate is 2% and the GDP gap is 3%, what does the federal funds rate target cqual? 9.5 percent 7.5 percent 5.5 percent 8.5 percent If GDP is $12,000 and velocity is 4, the money supply is $27,000. $12,000. $4,000. $3,000. Ouestions
If you were the Federal Reserve chairman, which monetary policy would you advise the federal government to adopt? Explain why. o Return to the classical gold standard o A gold price targeting policy o A monetary rule (i.e., increase the M2 money supply at a steady rate equal to the long-term real GDP growth rate, and allow interest rates to fluctuate without interference. o Price inflation target, i.e., set a maximum price inflation target, based on the Consumer Price Index...