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

question 22

Essay

Suppose the Fed is considering three different policy rules, as shown in the following table. $$\begin{array} { | c | c | c | c | } \hline \text { Inflation } & \begin{array} { c } \text { Policy Rule 1 } \\\text { (R) }\end{array} & \begin{array} { c } \text { Policy Rule 2 } \\\text { (R) }\end{array} & \begin{array} { c } \text { Policy Rule 3 } \\\text { (R) }\end{array} \\\hline 0 & 2 & 2 & 3 \\\hline 1 & 3 & 4 & 5 \\\hline 2 & 4 & 6 & 7 \\\hline 3 & 5 & 8 & 9 \\\hline 4 & 6 & 10 & 11 \\\hline 5 & 7 & 12 & 13 \\\hline\end{array}$$ (A) What is the difference between Rule 1 and Rules 2 and 3?
(B) What is the difference in the target infletion rate between Rules 2 and 3?
(C) Suppose the Fed is curtenty following Rule 2 and shifts to Rule 3 . Which way wril the $A D$ curve shift? Why wald the Fed make such a chenge in policy?

Evaluate different fiscal policy tools in closing recessionary and expansionary gaps.

Understand the impact of risk aversion and investment financing options on the required rate of return.

Describe the relationship between dividend growth rates and the cost of external equity capital.

Understand the differences between the cost of debt and the cost of equity and their implications for the WACC.

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Definitions:

One-to-many Relationship

A database relationship where a single record in one table is linked to multiple records in another table.

Criterion >=100

A condition used in data filtering or selection processes specifying that only records with values greater than or equal to 100 should be included.

Structured Query Language (SQL)

A standardized programming language used to manage and manipulate relational databases.

Access

Microsoft's database management system that merges the relational Microsoft Jet Database Engine, a graphical user interface, and tools for software development.