The long-run average value of the real interest rate

Question # 00621642 Posted By: dr.tony Updated on: 11/25/2017 04:26 AM Due on: 11/25/2017
Subject Economics Topic General Economics Tutorials:
Question
Dot Image

Use the Taylor rule: ????= ???? + ????? ? 1 ? (???? ? 0.04) + 0.5 (???? ? 0.02). The long-run average value of the real interest rate = 0.03, the target rate of inflation = 0.02, the natural unemployment level is 0.04. when unemployment is at its natural level and inflation is on target, the nominal interest rate = 0.05.

Suppose that unemployment is 0.04 and inflation grows from 0.02 to 0.04%


* What will the Fed set the nominal interest rate to if it follows the Taylor rule? Does Fed buy or sell bonds to bring about the change in the nominal interest rate?

* What will the real interest be after the Fed acts? Up or down? relate the answer about the change in the real interest rate to the Taylor rule.

Dot Image
Tutorials for this Question
  1. Tutorial # 00620332 Posted By: dr.tony Posted on: 11/25/2017 04:27 AM
    Puchased By: 2
    Tutorial Preview
    The solution of The long-run average value of the real interest rate...
    Attachments
    The_long-run_average_value_of_the_real_interest_rate.ZIP (18.96 KB)

Great! We have found the solution of this question!

Whatsapp Lisa