Suppose that the next FOMC meeting is coming up in a few days and the official inflation and output gap numbers have just been released. The current federal funds rate is 1.25​%, the​ long-term fed funds rate target is 3.25%, and the inflation rate target is 2%. According to the​ release, inflation is currently at 1.25 percent and the output gap is​ -0.5 percentage points. Given the information​ above, the expected federal funds rate is _____ percent.

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?

If the Federal Reserve wanted to offset a cyclical downturn in overall expenditures, it should   sell bonds to decrease the money supply thus increasing the interest rates to decrease business investment and therefore decreasing the overall level of expenditures and decreasing the price level.   buy bonds to decrease the money supply thus increasing the interest rates to decrease business investment and therefore decreasing the overall level of expenditures and decreasing the price level.   sell bonds to increase the money supply thus decreasing the interest rates to increase business investment and therefore increasing the overall level of expenditures and increasing the price level.   buy bonds to increase the money supply thus decreasing the interest rates to increase business investment and therefore increasing the overall level of expenditures and increasing the price level.

Y = C + I + G + NX C = 300 + 0.75 DI where DI = Y - T I = 600 - 1000r, G = 300, NX = -100, T = 200 How much is equilibrium Y if Fed decides to set the rate of interest at 10% (r = 0.1)