Assume the current Fed Chairman tries to impress the President and sets a short-term interest target....

Assume the current Fed Chairman tries to impress the President and sets a short-term interest target. Explain how (or if) he can still control inflation in the long run.

Expert Solution

Expectations in long run play an important role in the inflation dynamics.Several types of formation options will be made to do the selection.Change in inflation is based on the particular mechanism selected.The long run inflation is defined as monetary phenomenon and there should be a evidence to revision done at time of announcement policy changes.However the participants or the people in the economy scrutinise the policy actions than announcements of evidence in the policy shift.The long run expectation is an anchor or end point that at any point of time is predetermined in the calculation in the expectation of having a shorter horizon.Different methods can be used to control this and can be put in to give out the expectation that will be need in the long run by increasing the rate of interest in the central bank and mostly the monetary policy can be used to control the inflation .A monetary policy is characterized as a policy reaction function whose structures will implicitly reflect long term policy and any deviation from the speed will be eliminated and the changes in the policy functions including the speed of adjustment after the reaction functions coefficients.

Rahul Sunny answered 1 year ago

1. What controls the short-term interest rate in the United States? 2. Jerome Powell, Fed Chairman,...

1. What controls the short-term interest rate in the United States? 2. Jerome Powell, Fed Chairman, said that 1) an inflation risk is moderate; 2) the economy is doing well, and 3) a decision can be made in this week's Fed committee meeting on short-term interest rate. Assume the current short term interest rate is 1%. 3. After the the Fed chairman announced a quantitative easing, what should you do if you do not want to see the Chinese currency...

Assume that you are one of Fed governors working with Fed Chairman Powell on monetary policy....

Assume that you are one of Fed governors working with Fed Chairman Powell on monetary policy. What will be your advice on interest rates to him? Would you decrease the Federal Fund Rate in the coming months with a concern that the economy is in a recession?

Last names beginning with K-O: Assume that you are the Fed Chairman and that the country...

Last names beginning with K-O: Assume that you are the Fed Chairman and that the country is experiencing a recession. What type of monetary policy would you enact in order to address the recession? Be specific with your policy recommendations. What would happen to the money supply, the interest rate, equilibrium GDP, inflation, and unemployment as a result of your actions? Why? Last names beginning with P-Z: Assume that you are the Fed Chairman and that the country is experiencing...

The FED no longer tries to control monetary aggregates, rather it targets an interest rate. Explain...

The FED no longer tries to control monetary aggregates, rather it targets an interest rate. Explain the ways in which interest rates impact economic growth. Based on this, explain how a change in the FED’s interest rate target will impact the US economy.

2. Suppose that the current and expected future short-term interest rates are given by: it =...

2. Suppose that the current and expected future short-term interest rates are given by: it = 0:05 ie t+3 = 0:03 ie t+1 = 0:05 ie t+4 = 0:03 ie t+2 = 0:04 And suppose that the liquidity premiums on bonds with maturity on 1 through 3 years are: l1t = 0:00 l4t = 0:02 l2t = 0:01 l5t = 0:025 l3t = 0:015 (a) Find the yields on the 2-, 3-, 4-, and 5-year bonds implied by the expectations...

If the interest rate the Fed targets were below its target the Fed would make open...

If the interest rate the Fed targets were below its target the Fed would make open market purchases to increase reserves. make open market purchase to decrease reserves. make open market sales to increase reserves. make open market sales to decrease reserves.

Assume that annualized yields of short-term and long-term securities are equal. If investors suddenly believe interest...

Assume that annualized yields of short-term and long-term securities are equal. If investors suddenly believe interest rates will increase, their actions may cause the yield curve to Group of answer choices a.be unaffected. b.become flat. c.become upward sloping. d.become inverted.

Short-term interest rate in Indonesia and the United States are 6.5% and 1% respectively. The current...

Short-term interest rate in Indonesia and the United States are 6.5% and 1% respectively. The current exchange rate on June 15, 2020 is 14,010 Rupiah against US Dollar. Suppose a forward exchange rate at 15,000 Rupiah against US Dollar. You are required: Based on your calculation, Could you take a profit from an arbitrage?

Assume the Fed has a target inflation rate of 2% and that the values for how...

Assume the Fed has a target inflation rate of 2% and that the values for how much the nominal target federal funds rate responds to a deviation in inflation from its target,g, and how much the nominal target federal funds rate responds to real GDP , h, are both 0.5 According to the taylor rule if inflation increases by 6% the real interest rate will increase by

15. The Fed directly sets a. the prime interest rate but not the federal funds rate....

15. The Fed directly sets a. the prime interest rate but not the federal funds rate. b. both the federal funds rate and the prime interest rate. c. neither the federal funds rate nor the prime interest rate. d. the discount rate and the prime interest rate. 20. Since the financial crisis of 2007-2009, borrowing at the federal funds rate a. has dropped significantly because the rate has increased. b. has replaced open-market operations as the most frequently used tool...

Question