Macroeconomics (7th Edition)
7th Edition
ISBN: 9780134738314
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 15, Problem 15.5.5PA
To determine
Calculation of Federal funds rate by Taylor rule.
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Suppose that the equilibrium real federal funds rate is 4 percent and the target rate of inflation is 2 percent. Use the following information and the Taylor rule to calculate the federal funds rate target:
Current inflation rate = 6 percent
Potential real GDP = $14.83 trillion
Real GDP = $14.58 trillion
The federal funds target rate is
%. (Enter your response rounded to two decimal places.)
Suppose that the equilibrium real federal funds rate is 6 percent and the target rate of inflation is 1 percent. Use the following information and the Taylor rule
to calculate the federal funds rate target:
Current inflation rate = 7 percent
Potential real GDP =$14.85 trillion
Real GDP = $14.18 trillion
The federal funds target rate is ____%. (Enter your response rounded to two decimal places.)
Assume the following:
Current Actual Inflation Rate = 2%
Potential Real GDP = 100,000
Actual Real GDP = 100,000
According to the Taylor Rule, the Fed should set the federal funds rate at
percent. In that case, the real federal funds rate will equal
Let this be our base case scenario.
According to Taylor, what will happen to the inflation rate in this case?
percent.
Chapter 15 Solutions
Macroeconomics (7th Edition)
Ch. 15 - Prob. 15.1.1RQCh. 15 - Prob. 15.1.2RQCh. 15 - Prob. 15.1.3RQCh. 15 - Prob. 15.1.4PACh. 15 - Prob. 15.1.5PACh. 15 - Prob. 15.1.6PACh. 15 - Prob. 15.1.7PACh. 15 - Prob. 15.2.1RQCh. 15 - Prob. 15.2.2RQCh. 15 - Prob. 15.2.3RQ
Ch. 15 - Prob. 15.2.4RQCh. 15 - Prob. 15.2.5RQCh. 15 - Prob. 15.2.6PACh. 15 - Prob. 15.2.7PACh. 15 - Prob. 15.2.8PACh. 15 - Prob. 15.2.9PACh. 15 - Prob. 15.2.10PACh. 15 - Prob. 15.3.1RQCh. 15 - Prob. 15.3.2RQCh. 15 - Prob. 15.3.3RQCh. 15 - Prob. 15.3.4PACh. 15 - Prob. 15.3.5PACh. 15 - Prob. 15.3.6PACh. 15 - Prob. 15.3.7PACh. 15 - Prob. 15.3.11PACh. 15 - Prob. 15.3.12PACh. 15 - Prob. 15.3.13PACh. 15 - Prob. 15.3.14PACh. 15 - Prob. 15.3.15PACh. 15 - Prob. 15.4.1RQCh. 15 - Prob. 15.4.2RQCh. 15 - Prob. 15.4.3PACh. 15 - Prob. 15.4.4PACh. 15 - Prob. 15.4.5PACh. 15 - Prob. 15.4.6PACh. 15 - Prob. 15.5.1RQCh. 15 - Prob. 15.5.2RQCh. 15 - Prob. 15.5.3RQCh. 15 - Prob. 15.5.4PACh. 15 - Prob. 15.5.5PACh. 15 - Prob. 15.5.6PACh. 15 - Prob. 15.5.7PACh. 15 - Prob. 15.5.8PACh. 15 - Prob. 15.5.9PACh. 15 - Prob. 15.6.1RQCh. 15 - Prob. 15.6.2RQCh. 15 - Prob. 15.6.3PACh. 15 - Prob. 15.6.4PACh. 15 - Prob. 15.6.5PACh. 15 - Prob. 15.6.6PACh. 15 - Prob. 15.6.7PACh. 15 - Prob. 15.6.8PACh. 15 - Prob. 15.6.9PACh. 15 - Prob. 15.2RDECh. 15 - Prob. 15.3RDE
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- Based on the Taylor Rule use the following information to calculate the target federal funds rate. Variable Value Target inflation rate Current inflation rate 2 percent 4 percent 2 percent Real equilibrium federal funds rate Output gap 6 percent In this case, the Federal funds target rate is: percent. (Round your solution to one decimal place.)arrow_forwardAssume the following: Current Actual Inflation Rate = 6% (like these days) Potential Real GDP=100,000 Actual Real GDP = 100,000 According to the Taylor Rule, the Fed should set the federal funds rate at percent. In that case, the real federal funds rate will equal percent.arrow_forwardBased on the Taylor Rule use the following information to calculate the target federal funds rate. Variable Target inflation rate Current inflation rate Real equilibrium federal funds rate Output gap In this case, the Federal funds target rate is: percent. (Round your solution to one decimal place.) Value 2 percent 4 percent 2 percent 9 percentarrow_forward
- Using the Taylor rule, calculate the target for the federal funds rate, using the following information: equilibrium real federal funds rate of 2%, target inflation rate of 2%, current inflation rate of 1.2% and an output gap of 5.9%. In your calculations the inflation gap is negative if the current inflation rate is below the target inflation ratearrow_forwardSuppose the actual federal funds rate is equal to the rate implied by a particular inflation goal. In this situation, the Taylor rule implies thatarrow_forwardUsing Taylor's rule, when the equilibrium real federal funds rate is 2 percent, the positive output gap is 2 percent, the target inflation rate is 1 percent, and the actual inflation rate is 2 percent, the nominal federal funds rate target should be:arrow_forward
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