Exam 17: Monetary Policy Targets and Goals

If the equilibrium real fed funds rate is 2%, the inflation gap is 1%, and the output gap is 2%, find the real federal funds rate recommended by the Taylor Rule.

The Federal Reserve chairman credited with ending the Great Inflation is

Interest rate targeting was a primary cause of the Great Inflation.

According to the Taylor Rule, if the output gap falls, the targeted interest rate should fall as well, ceteris paribus.

According to the Taylor Rule, if inflation rises by 2%, then the targeted interest rate should rise by more than 2%.

Policy that tends to make recessions worse and booms inflationary is called pro-cyclical.

Regulation Q helped lower macroeconomic volatility in the United States starting in the late 1980s.

Why do people speculate that the Feds haven't adopted explicit targets?

Central banks try to use their influence over the money supply to change interest rates.

Decreased macroeconomic volatility is attributable to the Fed

According to the Taylor Rule, if the output gap rises by 1% and inflation rises by 2%, then the federal funds rate should rise by

Monetary policy that attempts to fix interest rates at a constant value is anti-cyclical.

During the 1970s, the Federal Reserve targeted monetary aggregates like M1 and M2.

The equilibrium real fed funds rate is 2%, the inflation target is 2% and the growth rate of potential output is 3%. If inflation is -1% and GDP growth is 0%, find the federal funds rate recommended by the Taylor Rule. What is an additional problem in this situation? (Note: The output gap is output growth minus potential output growth.)

Which of the following countries had some success with targeting monetary aggregates?

A central bank would increase the money supply to

One of the Federal Reserve's goals is 0% unemployment.

Raising interest rates could have the effect of decreasing exports.

A central bank using the Taylor Rule is only concerned about inflation.

If a central bank adopts a policy of fixing an interest rate at a constant value and the economy enters a recession, what would happen to money supply and demand? Explain with a graph. Is this policy pro-cyclical or anti-cyclical?