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:

Control Group

In experimental research, this is the group of participants not exposed to the experimental treatment, serving as a baseline to compare with the experimental or treatment group.

Double-blind Study

A research experiment in which neither the participants nor the experimenters know who is receiving a particular treatment, eliminating bias in the results.

Dependent Variable

In an experiment, it is the variable being tested and measured, and is thought to be influenced by the independent variable.

Independent Variable

The variable in an experiment that is manipulated or changed by the researcher to observe its effects on the dependent variable.