User Account

All Pages

Federal Inflation Rate, Business Economics

Assignment Help:
Numerical Exercise 11.
Suppose that the Fed’s inflation target is 2 percent, potential output growth is 3.5 percent, and velocity is a function of how much the interest rate differs from 5 percent:
% ?V = 0.5 x (i – 5)
Suppose that a model of the economy suggests that the real interest rate is determined by the equation
R= 8.5 - % ?Y
Where Y is the level of output, so % ?Y is the growth rate of output. Suppose that people expect the Fed to hit its inflation target.
a. Calculate the optimal money growth rate needed for the Fed to hit its inflation target in the long run.


b. In the short run, if output growth is just 2 percent for two years and the equation determining the real interest rate changes to r = 4.5 - % ?Y, what money growth rate should the Fed aim for to hit its inflation target in that period?


c. If the Fed instead maintained the money growth rate from part a, what is likely to happen to inflation?

d. Which policy do you think is better in the short run? Which is better in the long run?

Related Discussions:- Federal Inflation Rate

Transactions and precautionary demand, 1.Classify each of the following as ...

1.Classify each of the following as related to the transactions demand, precautionary demand, or asset (speculative) demand for money. Explain: (a) Rodrigo keeps $200 in cash in

Effectiveness of world bank in promotion of development, Define the effecti...

Define the effectiveness of World Bank in promotion of development? The World Bank has a clear set of goals: to assist countries meet the UN Millennium Development Goals. A ma

Entrepreneurship and economic growth, Write a book review of a book of your...

Write a book review of a book of your choice (chosen from the list of course reference literature) by either Joseph A. Schumpeter or Israel Kirzner about entrepreneurship and macro

How did foreign debt arise, How did foreign debt arise? Evaluation: ...

How did foreign debt arise? Evaluation: Borrowing shows an injection of new resources in the domestic economy and also an opportunity for development. • When borrowed re

Replacement cost and historical cost, about replacement and historical cost...

about replacement and historical costs

Perfect competition market, what is the short run and long run effects of a...

what is the short run and long run effects of a new idea creating by a restaurateur i.e home cooking services in the perfect competitive market?

Characteristics of developed to less developed countries, What are the char...

What are the characteristics of developed countries applied to Less Developed Countries? Some of Kuznets' characteristics of a DC (developed countries) can be applied to LDCs (

Q, You have an opportunity to invest in a new plant. The fixed costs are $1...

You have an opportunity to invest in a new plant. The fixed costs are $100,000 per year. The marginal cost of production is $2 for a quantity up to 10,000 units per year. The margi

Federal Inflation Rate, Numerical Exercise 11. Suppose that the Fed’s infla...

Numerical Exercise 11. Suppose that the Fed’s inflation target is 2 percent, potential output growth is 3.5 percent, and velocity is a function of how much the interest rate differ

Fiscal and monitory olicy, Assess the impact of fiscal and monetory policy ...

Assess the impact of fiscal and monetory policy on business organisations and their activities

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd