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Suppose the Fed Is Considering Three Different Policy Rules, as Shown

question 136

Essay

Suppose the Fed is considering three different policy rules, as shown in the following table. Suppose the Fed is considering three different policy rules, as shown in the following table.   (A)What is the difference between Rule 1 and Rules 2 and 3? (B)What is the difference in the target inflation rate between Rules 2 and 3? (C)Suppose the Fed is currently following Rule 2 and shifts to Rule 3. Which way will the AD curve shift? Why would the Fed make such a change in policy? (A)What is the difference between Rule 1 and Rules 2 and 3?
(B)What is the difference in the target inflation rate between Rules 2 and 3?
(C)Suppose the Fed is currently following Rule 2 and shifts to Rule 3. Which way will the AD curve shift? Why would the Fed make such a change in policy?

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