Suppose a Country Faces the Following Situation: Inflation Rate =

question 205

Multiple Choice

Suppose a country faces the following situation: inflation rate = 5%; target inflation rate = 2%; current federal funds rate = 3%; current GDP 4% below full-employment GDP; and long-run real GDP growth rate = 3%. Which statement correctly describes monetary policy actions that would be recommended according to the monetary rule, inflation targeting, and the Taylor rule?

• A) The monetary rule would recommend contractionary policy; inflation targeting would recommend contractionary policy; the Taylor rule would recommend contractionary policy.
• B) The monetary rule would recommend expansionary policy; inflation targeting would recommend expansionary policy; the Taylor rule would recommend expansionary policy.
• C) The monetary rule would recommend ongoing steady expansion; inflation targeting would recommend expansionary policy; the Taylor rule would recommend contractionary policy.
• D) The monetary rule would recommend ongoing steady expansion; inflation targeting would recommend contractionary policy; the Taylor rule would recommend expansionary policy.

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Definitions:

Retina

The thin inner surface of the back of the eyeball; this surface contains the sensory receptors.

Pupil

the black circular opening in the center of the iris of the eye, which regulates the amount of light that enters the eye.

Sensation

The process by which our sensory receptors and nervous system receive and represent stimulus energies from our environment.

Perception

The process of organizing, identifying, and interpreting sensory information to represent and understand the environment or an event.