Question
ii. What is the goal of expansionary monetary policy, and how does it work in the short run? Clearly explain the goal and the steps
ii. What is the goal of expansionary monetary policy, and how does it work in the short run? Clearly explain the goal and the steps involved in its workings.
b) Suppose the annual inflation rate is at 2% and 8.5% of the labor force is unemployed. If you were on the Federal Open Market Committee, what action would you prescribe and how would this affect the economy (i.e. the GDP), the inflation rate, and the unemployment rate? (this is also a two-part question)
c) Suppose that the inflation rate is 2.5%. The unemployment gap is 2%. Use the Taylor Rule to estimate the target Federal funds rate. (Note: Define or write out the rule first and then apply it to answering the question)
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