Consider the Following Rule for Monetary Policy: R = 2

question 41

Multiple Choice

Consider the following rule for monetary policy: r = 2 percent + π + 1/2y - y*) /y* + 1/2π - π*) , where r is the nominal federal funds rate, y is real GDP, y* is an estimate of the natural rate of output, π is the inflation rate, and π* 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:

Hydrogen Ions

Positively charged ions (H+) that are simply protons and play essential roles in chemical reactions, particularly in determining the acidity or pH of solutions.

Bicarbonate Ions

An ion consisting of hydrogen, carbon, and three oxygen atoms, playing a crucial role in maintaining pH balance in the blood.

Acidity

A chemical property that quantifies the amount of acid in a solution, often measured by pH levels.

Prostate Gland

A gland in the male reproductive system that produces a fluid that mixes with sperm to form semen.