Inflation targeting is different from the Taylor rule because the Taylor rule is based on a forecast of inflation, but inflation targeting adjusts monetary policy to past inflation. True False
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- Does the effectiveness of monetary policy depend on inflationexpectations? ExplainWhich of these is an alternative to monetary policy and aims to reduce inflation? reduce the money supply raise government purchases reduce taxes increase taxesthe amount of inflation caused by expansionary monetary policy depends on the slope of the supply curve. true false
- How can monetary policy address the problem of inflation?Suppose the current monetary policy is r = 1.0 + 0.75π, and the IS curve is given by Y = 13 - r. Calculate the numerical value for (Y) aggregate output when inflation equals 4%. Do not use chatGPT.Which describes the difference between the Taylor rule and inflation targeting? A) The Taylor rule responds to past inflation, and inflation targeting is based on a forecast of inflation. B) The Federal Reserve uses inflation targeting, and the Bank of England uses the Taylor rule. C) Inflation targeting responds to past inflation, and the Taylor rule is based on a forecast of inflation. D) Inflation targeting is a strategy used in conducting fiscal policy, while the Taylor rule is used in monetary policy.
- Use a simple model to show that the control of inflation at a low level requires precommitment by the policymaker. What kinds of pre-commitment are possible, and what kinds have been most used in the last two decades?Identify the sources ofinflation and the roleof monetary policy inpropagating inflation.Because inflation targeting focuses on achieving the inflation target, it will lead to excessive output fluctuations." Is this statement true, false, or uncertain? Explain.
- How does rule based monetary policy help to overcome the time inconsistency problem? What is one potential issue with rules based monetary policy?How does monetary policy handle the macroeconomic failures of inflation?The great economist Milton Friedman has said that “inflation is always and everywhere a monetary phenomenon.” Explain.