How a central bank does not satisfy the taylor principle

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Q. Suppose that, during the day, the station owner's demand is given by PD=2.06 - .00025QD. The marginal cost of selling gasoline is $1.31 per gallon. At his current $1.69 price, he sells 1,500 gallons per week. Is this price-output combination optimal? Explain.

Q. Assume a central bank does not satisfy the Taylor principle. Use a graph to analyze the impact of a supply shock. Does this analysis contradict or reinforce the Taylor principle as a guideline for the design of monetary policy?

Reference no: EM1350620

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