Federal Reserve Economic Data (FRED), from Federal Reserve Bank of Saint Louis provide the data in the chart below. In addition on Dec 14, 2016- the Federal Funds Rate was 0.41 percent per year, and on Dec 28, 2016 it was 0.66 percent per year. At the current level of the Federal Funds Rate, the Fed is concerned about inflation 6.0 1.0 6.0 5.0 4.0 3.0- 2.0 1.0 0.0 Federal funds rate (percent per year) 09/2006 09/2000 09/2010 Year more; than it is about the exchange rate less; than it is about unemployment more; than it is about unemployment less; than it is about government debt 09/2012 09/2014 09/2016

Federal Reserve Economic Data (FRED), from Federal Reserve Bank of Saint Louis provide the data in the chart below. In addition on Dec 14, 2016- the Federal Funds Rate was 0.41 percent per year, and on Dec 28, 2016 it was 0.66 percent per year. At the current level of the Federal Funds Rate, the Fed is concerned about inflation 6.0 1.0 6.0 5.0 4.0 3.0- 2.0 1.0 0.0 Federal funds rate (percent per year) 09/2006 09/2000 09/2010 Year more; than it is about the exchange rate less; than it is about unemployment more; than it is about unemployment less; than it is about government debt 09/2012 09/2014 09/2016

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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INTEREST RATE (Percent) 18 15 2 so 3 0 0 20 Money Supply Money Demand 40 60 80 MONEY (Billions of dollars) 100 120 Money Demand Money Supply Following the price level increase, the quantity of money demanded at the initial interest rate of 9% will be supplied by the Fed at this interest rate. As a result, individuals will attempt to will bonds and other interest-bearing assets, and bond issuers will realize that they equilibrium is restored in the money market at an interest rate of % than the quantity of money their money holdings. In order to do so, they interest rates until
Suppose that actual inflation is 2.5 percent, the Fed's inflation target is 2 percentage points, and unemployment rate is 2.5 (which is 1.5 percent below the Fed's full-employment target of 4 percent). According to the Taylor Rule, what value will the Fed want to set for its targeted interest rate?
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Suppose that in 1980, the U.S. inflation rate was 14 percent and the unemployment rate reached 7.6 percent. Suppose that the target rate of inflation was 3 percent back then and the full-employment rate of unemployment was 6 percent at that time. What value does the Taylor Rule predict for the Fed's target interest rate? Instructions: Enter your answer rounded to 2 decimal places. 18.95 percent