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Assignment on nominal anchors

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Nominal anchors

Suppose you are the chairman of the Central Bank in Gilead. The current inflation rate is 15%. Gilead has a real income growth rate of 3%. The world real interest rate is constant and 6%.

  1. What is the growth rate of money supply in this economy?
  2. As the Central Bank, you want to achieve a target inflation rate of 8% within a year by adopting a money supply target. What money supply growth rate will allow you to achieve your target inflation rate?
  3. Suppose instead you want to adopt an interest rate policy to achieve the target inflation rate of 8%. What target nominal interest rate will allow you to accomplish your inflation target? 

Reference no: EM133057146

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