13) Which of the following is not an argument against inflation targeting? If the weights for the inflation gap and the output gap are both 1/2, then according to the Taylor rule the federal funds target rate equals The Equilibrium Real Funds Rate: Past, Present and Future James D. Hamilton University of California at San Diego and NBER Ethan S. Harris Bank of America Merrill Lynch Jan Hatzius Goldman Sachs Kenneth D. West University of Wisconsin and NBER February 27, 2015 Last revised May 11, 2016 We thank Jari Stehn and David Mericle for extensive help with the modeling work in Section 6. Suppose that the demand for Federal funds curve is such that the quantity of funds demanded changes by $120 million for each 1 percent change in the Federal funds interest rate. A) core personal consumption expenditures price index. (adsbygoogle = window.adsbygoogle || []).push({}); Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP equals potential GDP, then the federal funds target rate equals the. This E-mail is already registered as a Premium Member with us. Question: Suppose the equilibrium real federal funds rate is 2 percent, the current inflation rate is 4 percent, the target rate of inflation is 2 percent, and real GDP is 2 percent above potential real GDP. ScholarOn, 10685-B Hazelhurst Dr. # 25977, Houston, TX 77043,USA. Discount rate. The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent. The median projection of the long-run fed funds rate—essentially, an estimate of the neutral rate—has declined over time. B) the central bank commits to achieving a publicly announced level of inflation. Since real GDP is 2 percentage points below potential GDP the Fed should lower the Federal funds rate by 1 percentage point. PiA – Physik im Advent 2020 – Aufgabe 12 Lösung. If the weights for the inflation gap and the output gap are both 1/2, then according to the Taylor rule the federal funds target rate equals 20) Inflation targeting has been adopted by the central banks of several countries including the European Central Bank. Assume that the equilibrium real federal funds rate is 2% and the target for inflation is 1%. Suppose that the equilibrium real federal funds rate is 4 percent and the target rate of inflation 3 percent. Kindly login to access the content at no cost. The Fed has declared an intention to keep short-term interest rates at this near-zero level through late 2014. Current inflation rate = 4 percent Potential real GDP = $14.72 trillion Real GDP = $14.81 trillion The federal funds target rate is ___% → Federal funds rate. B) is a chain-type price index that allows the mix of products to change each year. Use the following information and the Taylor rule to calculate the federal funds rate target: Current inflation rate = 1 percent Potential real GDP = $14.87 trillion Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP equals potential GDP, then the federal funds target rate equals the; Suppose the equilibrium real federal funds rate is 2 percent, the current inflation rate is 4 percent; Chawhowhorge Brain Teaser Your email address will not be published. C) includes the prices of consumer services, but not consumer goods. D) is a fixed market-basket price index that does not allow the mix of products to change each year. If the weights for the inflation gap and the output gap are both 1/2, then according to the Taylor rule the federal funds target rate equals. The rule is based on three main indicators: the federal funds rate, ... is the assumed equilibrium real interest rate, is the logarithm of real GDP, and ¯ is the logarithm of potential output, as determined by a linear trend. Averaging real interest rates to estimate the equilibrium rate assumes that, on average, the real rate equals the equilibrium rate; that is, on average inflation and inflation expectations are at goal and output is at potential. Problem 3-8 DuPont identity ILO 3] Jiminy Cricket Removal has a profit margin of 8 percent... State whether the following are primarily microeconomic or macroeconomic policy issues:a. We examine the behavior, determinants, and implications of the equilibrium level of the real federal funds rate, interpreted as the long run or steady state value of the real funds rate. B) GDP Deflator, the broadest available price index. You don't know the Fed's inflation target, but the equilibrium real interest rate is 4 percent, the inflation rate is 3 percent, the weight on the GDP gap is 0.4, the weight on the inflation gap is 0.6 and nominal GDP is 2 percent points below its target. C) includes the prices of industrial equipment. Prime lending rate. The federal funds rate is currently 4 percent. 17) The core personal consumption expenditures price index excludes, 18) The consumer price index (CPI), the personal consumption expenditures price index (PCE), and the core PCE have over the last 10 years. 15) An advantage of the personal consumption expenditures price index (PCE) over the Consumer Price Index (CPI) as a measure of inflation is that the PCE. We draw three main conclusions. A) includes the prices of more consumer goods and services. Now suppose that the Fed retargets the rate to 3.5 percent. 16) An advantage of the personal consumption expenditures price index (PCE) over the Consumer Price Index (CPI) as a measure of inflation is that the PCE. 19) The Federal Reserve could target both the money supply and the interest rate at the same time if it controlled money demand along with money supply. First, the uncertainty around the equilibrium rate is large, and its relationship with trend GDP growth much more tenuous than widely believed. B) moved roughly together with the PCE being the most stable. 11) Suppose the equilibrium real federal funds rate 5 percent, 11) Suppose the equilibrium real federal funds rate 5 percent, : 1204233. Using the Quantity Theory of Money, what should be the annual growth rate of real money balance, M/P ? D) includes the prices of goods, but not services. 31) Suppose the equilibrium real federal funds rate is 2 percent, the target rate of inflation is 2 percent, the current inflation rate is 4 percent, and real GDP is 2 percent above potential real GDP. Question 3. Suppose that the equilibrium real federal funds rate is 66 percent and the target rate of inflation is 33 percent. Fill in the blanks. For example, if the nominal interest rate offered on a three-year deposit is 4% and the inflation rate over this period is 3%, the investor’s real rate of return is 1%. The Fed Funds rate was lowered from 5.25% in August, 2007 to effectively zero by December 2008 and it has remained at that level ever since. Suppose the equilibrium real federal funds rate is 2 percent, the target rate of inflation is 2 percent, the current inflation rate is 4 percent, and real GDP is 2 percent above potential real GDP. First proposed by Economist John B. 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