Assume the monetary policy curve is given by r = 1.5 +0.75. a) Calculate the real interest rate when the inflation rate is at 2%, 3%, and 4%. b) Plot the monetary policy curve and identify the points from part (a).
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- Suppose the monetary policy curve is given by r = 1.5 + 0.757, and the IS curve is given by Y = 13 – r. a) Find the expression for the aggregate demand curve. b) Calculate aggregate output when the inflation rate is 2%, 3% and 4%. c) Plot the aggregate demand curve and identify the three points from part (Ъ). d) What would be the effect on the aggregate demand curve of an increase in net export? Would an increase in net exports affect the monetary policy curve? Explain why or why not.An economy's aggregate demand curve (the relationship between short-run equilibrium output and inflation) is described by the equation:Y = 15,000 - 12,000π, where π is the inflation rate. Initially, the inflation rate is 2 percent or π = 0.02. Potential output Yp equals 14,640.Note: Keep as much precision as possible during your calculations. Your final answer for inflation should be accurate to at least two decimal places and output should be accurate to the nearest whole number.a) Find inflation and output in short-run equilibrium. Inflation : 0%Output : $0 b) Find inflation and output in long-run equilibrium. Inflation : 0%Output : $0Assume that at a Monetary Policy Committee meeting the South African Reserve Bank decides to increase the repo rate. what is the impact of a higher repo rate be on real production (Y) and prices
- Research suggests that macroeconomic factors can explain the dynamics of interest rates in the economy. Suppose we are interested in understanding whether inflation plays a role in explaining interest rates. Fitting a line between the current nominal interest rate i and current inflation we obtain: i = 0.041 -0.147 What is the expected level of interest rates when inflation is at the level of 4%?Deriving the aggregate demand curve from the quantity equation of money allows the aggregate demand curve to be written as P = MV / Y. If V = 3, and M = 1,000, then P = 3,000 / Y, and the slope of this function is:The Taylor Rule is given by rt = it +Pt+ 0.5(it - i*t) + 0.5(u*t-ut) The Federal Reserve is targeting 2% inflation and the natural rate of unemployment is believed to be 4.7%. Economic data suggests that the inflation rate is currently 4.7% while the unemployment rate is 9.8%. The real rate of interest is believed to be 2.5%. According to the Taylor Rule, what target should the Federal Reserve set for the Federal Funds Rate? Put your final answer in percentage form (e.g. 30.57 not 0.3057), but be careful about this. If you just use the numbers as is, you don't need to adjust anything. Round your final answer to two decimal places. Both positive and negative answers are possible.
- Suppose the economy of Macroland is described by the following:C = 200 + 0.8 DI (DI = disposable income)I = 300 + 0.2Y − 50r (Y = GDP)(r, the interest rate, is measured in percentage points. For example, a 9 percent interest rate is r = 9).For this economy, assume that the Federal Reserve uses its monetary policy to peg the interest rate atr = 5G = 750T = 0.25YX = 200M = 150 + 0.2YHint: DI = Y − T From Table 36-1, find the trade deficit or surplus. a. 75 surplus b. 475 surplus c. 475 deficit d. 75 deficitIf the money supply (M) is $300, the real GDP (Q) is 200, the velocity of money (V) is 6, the interest rates is 5% and the inflation rate is 3%, then calculate nominal GDP.C= 1,600+0.6(Y-7) - 2,000r P=2,500-1,000r G=2,000 NX= 50 T= 2,000 The Bank of Lotusland, the central bank, has announced that it will set the real interest rate according to the policy reaction function found in the table below. Inflation rate, n Real interest rate, r 0.040 0.045 0.050 0.055 0.060 0.00 0.01 0.02 0.03 0.04 a. For each of the rates of inflation given below, find autonomous expenditure and short-run equilibrium output in Lotusland. Instructions: Enter your responses rounded to whole numbers. Inflation rate, n Real interest rate, r 0.040 0.045 0.050 0.055 0.060 0.00 0.01 0.02 0.03 0.04 Autonomous expenditure Equilibrium output Using the data above, graph the AD curve Instructions: in the graph below, use the line tool AD' to draw the aggregate demand line for levels of inflation 4 percent and 0 percent. Draw only the two endpoints.
- 3. Suppose the monetary policy curve is given by r = 1.5 +0.75 , and the IS curve is given by Y = 13- a) Find the expression for the aggregate demand curve. b) Calculate aggregate output when the inflation rate is at 2%, 3%, and 4%. c) Plot the aggregate demand curve and identify the three points from part (b).Consider the same economy as in the previous question with the supply of money fixed at $2000. Now suppose there is a shift in the money demand equation such that households in aggregate desire to hold an additional $150 in cash balances for any given level of interest rates. (a) Calculate the effect this has on the equilibrium interest rate (to two decimal places). (b) What would the central bank have to do to offset this effect?Consider the following expressions: π = πe + ε(un − u) (1) L(u,π) = a(u − un) + π2 (2)1) Assign a label to expression (1) and (2) and interpret them in detail.2) Utilizing expression (1) and (2) find the optimal level of inflation under discretionary monetary policy outlook. Also interpret the derived value.