Is the federal funds rate currently too high or too low

Reference no: EM13221018

If the economy is thought to be 2 percent above potential (that is, the output gap is 2 percent) when potential output grows 4 percent per year. The Fed is following the Taylor rule, with an inflation rate of 2 percent over the past year. The federal funds rate is currently 3 percent. The equilibrium real federal funds rate is 3 percent, and the weights on the output gap and inflation gap are 0.5 each. The inflation target is 1 percent. a Is the federal funds rate currently too high or too low? By how much? Show your work. b If that a year has gone by, output is now just 1 percent above potential, and the inflation rate was 1.5 percent over the year. What federal funds rate should the Fed now set (assuming that the inflation target does not change)?

Reference no: EM13221018

Questions Cloud

Was the governments argument economically correct : (1) they cannot be purchased in regular grocery or hardware stores and (2) the presence of salespeople creates another "layer" that simply adds on the price. Was the government's argument correct, economically speaking Why or why not

Explain the horizontal direction before landing : how long was the flight? How far did it travel in the horizontal direction before landing? What was the highest altitude it reached? Neglecting air friction at what angle should the projectile have been fired to maximize the horizontal range.

How many teams have to be deployed by the company : A team works for 300 days/year and management wants each team to have a capacity cushion 30 days per year. How many teams have to be deployed by the company to complete the project in one year.

Explain the sign for delta g is negative : how could one be endothermic (positive delta H- NaNO3 dissolves in water) and one be exothermic (negative delta H- NaCH3COO dissolves in water)? Is there more to consider than just the dissolving process?

Is the federal funds rate currently too high or too low : The federal funds rate is currently 3 percent. The equilibrium real federal funds rate is 3 percent, and the weights on the output gap and inflation gap are 0.5 each. The inflation target is 1 percent. Is the federal funds rate currently too high o..

Prepare a induction programme for a new hr administrator : Write a short guidance note explaining 3 purposes of induction and how these can benefit individuals and organisations and prepare a simple induction programme for a new HR Administrator covering the first 3 months of employment

What is lost when no feedback is required : What is lost when no feedback is required?

Which receives a fee when it directs newly procured organ : If the formerly "free" organ now has a price placed upon it, then that will drive up the total costs for having organ transplants, thus making such operations more expensive and, therefore, out of reach for lower-income people.

Describe the areas where you see yourself lacking : From the e-Activity, briefly describe your results from the communication skills quiz. Describe the areas where you see yourself lacking or needing improvement as a communicator, and suggest steps you could take to improve or fill a void.

User Account

All Pages