1.Central Banking

1.Write the Fisher equation. What is the nominal interest rate when the real interest rate is 3% and the inflation rate is 2%? (5 pts)

2.Suppose the central bank targets a 2% annual inflation rate. How might you decide whether the central bank's inflation target is credible today? (5 pts)

3.Agree or disagree with the following statement:

Low nominal interest rates imply that monetary policy is highly expansionary while high nominal interest imply that monetary policy is highly contractionary. (5 pts)

4.In the context of the AS-AD model, would you prefer the central bank target nominal GDP or inflation? Defend your answer. (5 pts).