Consider the Following Rule for Monetary Policy: R = 2 $\pi$

question 183

Multiple Choice

Consider the following rule for monetary policy: r = 2 percent + $\pi$ + 1/2(y - y*) /y* + 1/2( $\pi$ - $\pi$ *) , where r is the nominal federal funds rate, y is real GDP, y* is an estimate of the natural rate of output, $\pi$ is the inflation rate, and $\pi$ * is the inflation target. Other things the same, if the inflation rate rises by 1 percentage point this rule says the Fed should increase the nominal federal funds rate by

• A)1/2 percentage point
• B)1 percentage point
• C)1 and 1/2 percentage points
• D)3 and 1/2 percentage points

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Definitions:

Unconscious

Refers to the part of the mind that is inaccessible to the conscious mind but affects thoughts and behaviors.

Collective Unconscious

Concept in psychology, proposed by Carl Jung, referring to the part of the unconscious mind that is derived from ancestral memory and experience and is common to all humankind.

Conscious

The ability to be conscious of and deliberate on one's existence, sensations, cognitions, setting, and experiences lived.

Implicit

Something implied or understood without being explicitly stated or directly communicated.