Instrument or an intermediary target

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1) Classify each of the following as either a policy instrument or an intermediary target. Explain your answer

a) Long-term interest rates

b) Central bank interest rates

c) M2

d) Reserve requirements

2) What does the Taylor rule imply that policymakers should do the fed funds rate under the following scenarios?

a) Unemployment rises due to a recession

b) Potential output declines while actual output remains unchanged.

c) The equilibrium real fed funds rate decreases

d) An oil price shock causes the inflation rate to rise by %1 and output to fall by 1%.

Reference no: EM132506439

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