1. Say the monetary policy committee decides to set the OCR on the basis of the average of model predictions of output growth response to interest rates changes.

Calculate the potential effects of this policy on unemployment according to the prediction of Model (a).

Please answer with the resulting unemployment rate, not the change.

2. Say the monetary policy committee decides to set the OCR on the basis of the average of model predictions of output growth response to interest rates changes.

Calculate the potential effects of this policy on unemployment according to the prediction of Model (b).

Please answer with the resulting unemployment rate, not the change.

3. Say the monetary policy committee decides to set the OCR on the basis of the average of model predictions of output growth response to interest rates changes.

Calculate the potential effects of this policy on unemployment according to the prediction of Model (c).

Please answer with the resulting unemployment rate, not the change.

Suppose the US economy is in recession. The unemployment rate is 7% and the Federal Reserve Bank is considering using monetary policy to expand output. Assume the bank knows, with certainty, that: i. absent changes in monetary policy, unemployment will still be 7% next year; . the natural rate of unemployment is 5%; iii. from Okun's law, 1% more output growth for a year leads to a 0.4% reduction in the unemployment rate. Also assume the bank can effectively use monetary policy to increase output growth rates as desired, i.e., the interest rate is sufficiently far away from the zero lower bound. However, the bank is uncertain about the effect that changes in its policy rate, the Official Cash Rate (OCR), have on output growth. To inform its decisions, the monetary policy committee summons the research department to produce predictions of the one-year response of US output growth to a decrease of 1% in the OCR. The research department, using three different macroeconometric models, presents the results from three different models: Model (a): output growth is predicted to increase by 1.0% (moderate monetary transmission channel) Model (b): output growth is predicted to increase by 0.6% (weak monetary transmission channel) Model (e): output growth is predicted to increase by 2.0% (strong monetary transmission channel) The research department further informs that each model prediction is equally likely, and that effects for OCR changes different than -1% are proportional to these predictions, eg.: a decrease of 2% in the OCR is predicted to increase output growth by 2% according to model (a), 12% according to model (b), and 4% according to model (c), and so on. Using the scenario information above answer the following questions. Note: for the numerical questions, please provide a numerical answer in percentage points, e.g., 1 for 1%, -2 for-2%, etc. Suppose the US economy is in recession. The unemployment rate is 7% and the Federal Reserve Bank is considering using monetary policy to expand output. Assume the bank knows, with certainty, that: i. absent changes in monetary policy, unemployment will still be 7% next year; . the natural rate of unemployment is 5%; iii. from Okun's law, 1% more output growth for a year leads to a 0.4% reduction in the unemployment rate. Also assume the bank can effectively use monetary policy to increase output growth rates as desired, i.e., the interest rate is sufficiently far away from the zero lower bound. However, the bank is uncertain about the effect that changes in its policy rate, the Official Cash Rate (OCR), have on output growth. To inform its decisions, the monetary policy committee summons the research department to produce predictions of the one-year response of US output growth to a decrease of 1% in the OCR. The research department, using three different macroeconometric models, presents the results from three different models: Model (a): output growth is predicted to increase by 1.0% (moderate monetary transmission channel) Model (b): output growth is predicted to increase by 0.6% (weak monetary transmission channel) Model (e): output growth is predicted to increase by 2.0% (strong monetary transmission channel) The research department further informs that each model prediction is equally likely, and that effects for OCR changes different than -1% are proportional to these predictions, eg.: a decrease of 2% in the OCR is predicted to increase output growth by 2% according to model (a), 12% according to model (b), and 4% according to model (c), and so on. Using the scenario information above answer the following questions. Note: for the numerical questions, please provide a numerical answer in percentage points, e.g., 1 for 1%, -2 for-2%, etc