1. If the inflation target increases, the AD curve is unchanged but inflation increases along the

AD curve. True or False?

2. If monetary policy really operated using a mechanical policy reaction function, we could replace

a central bank governor with a computer that would determine interest rates. Why do you think

central bank governors still exist and have not been replaced by computers? If policy rules do

not reflect how central bank governors operate, do you think there is a problem in using them

in macroeconomic models?