Adoption of tighter-more anti-inflationary monetary policy

Reference no: EM13695912

The adoption of a tighter, more anti-inflationary monetary policy might be politically unpopular because the Fed will:

1. Increase the target inflation rate, lowering the real interest rate at every rate of inflation, causing a recessionary gap and increasing unemployment above the natural rate.

2. Increase the target inflation rate, decreasing the real interest rate at every rate of inflation, causing an inflationary gap and lowering unemployment above the natural rate.

3. Lower the target inflation rate, increasing the real interest rate at every rate of inflation, causing an inflationary gap and increasing unemployment below the natural rate.

4. Lower the target inflation rate, increasing the real interest rate at every rate of inflation, causing a recessionary gap and increasing unemployment above the natural rate.

Reference no: EM13695912

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