PLEASE ANSWER ALL AND INCLUDE DRAWN GRAPHS PLEASE. 1.F. Explain the Taylor rule (be sure to provide the equation and tell what the central bank will do). If thecentral bank of a country has a policy of inflation targeting, what does this imply about the Taylor rule? Dothe Fed and European Central Bank follow the Taylor rule? Explain your answers.1.G. Suppose a country is at potential GDP and the government decides to balance the fiscal budget byreducing government spending. Illustrate and explain the effects on GDP, interest rates, and prices using anIS-LM graph and an AD-SAS graph.1.H. Suppose the Fed responds to the effort to balance the budget in 1G by following the Taylor rule. Whatwould the Fed do? Explain why. Explain what would happen to GDP, interest rates, and prices. Illustrate onboth an IS-LM and an AD-SAS graph, comparing the equilibrium in IG to the new equilibrium after theFed acts (either use new graphs or carefully label the ones used in part 1G so that it is clear which curvesare shifting and what the effects are on GDP, interest rates, and prices).

Central bank policy refers to the actions and decisions taken by a country's central bank to manage…

1.F. Explain the Taylor rule (be sure to provide the equation and tell what the central bank will do). If the central bank of a country has a policy of inflation targeting, what does this imply about the Taylor rule? Do the Fed and European Central Bank follow the Taylor rule? Explain your answers.

1.F. Explain the Taylor rule (be sure to provide the equation and tell what the central bank will do). If the central bank of a country has a policy of inflation targeting, what does this imply about the Taylor rule? Do the Fed and European Central Bank follow the Taylor rule? Explain your answers.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter27: Issues In Macroeconomic Theory And Policy

Section: Chapter Questions

Problem 1P

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Question

PLEASE ANSWER ALL AND INCLUDE DRAWN GRAPHS PLEASE.

1.F. Explain the Taylor rule (be sure to provide the equation and tell what the central bank will do). If the
central bank of a country has a policy of inflation targeting, what does this imply about the Taylor rule? Do
the Fed and European Central Bank follow the Taylor rule? Explain your answers.
1.G. Suppose a country is at potential GDP and the government decides to balance the fiscal budget by
reducing government spending. Illustrate and explain the effects on GDP, interest rates, and prices using an
IS-LM graph and an AD-SAS graph.
1.H. Suppose the Fed responds to the effort to balance the budget in 1G by following the Taylor rule. What
would the Fed do? Explain why. Explain what would happen to GDP, interest rates, and prices. Illustrate on
both an IS-LM and an AD-SAS graph, comparing the equilibrium in IG to the new equilibrium after the
Fed acts (either use new graphs or carefully label the ones used in part 1G so that it is clear which curves
are shifting and what the effects are on GDP, interest rates, and prices).

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