Given a Monetary Policy Rule of the Form R =

question 21

Multiple Choice

Given a monetary policy rule of the form r = p + 0.5Y^{^} + 0.5p - p*) + 0.03 and assuming that the output gap equals zero, an unexpected price shock of

• A) raise nominal interest rates by 5 percent.
• B) raise the real interest rate target by 2.5 percent.
• C) raise nominal interest rates by 7.5 percent.
• D) raise the inflation target by 2.5 percent.
• E) wait and see if the shock turned out to be a permanent change.

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Definitions:

Financial Advantage

A benefit gained in terms of financial health, growth, or savings that gives a business or individual a competitive edge.

Operating Results

The outcomes or the financial performance of a business's operations, often presented in the form of income statements displaying revenues, expenses, and net profits or losses.

Contribution Margin

The margin created by subtracting variable costs from sales revenue, which is utilized to pay for fixed expenses and create profit.

Fixed Costs

Expenses that do not change with the level of production or sales over a certain period, such as rent, salaries, and insurance.