hw6f06 - Use back of sheet if necessary 2 6.3(10 homework...

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Print name______________________ Sign name _____________________ Recitation Day & Time _________________ Econ 520 F06 Homework 6 10/31, 11/2, due 11/3 6.1. (10 homework points). Using the Money and Credit model in M&B Chapter 19 (Figs. 5, 6, 9, and 10), explain the effect of a one-time decrease in the supply of money on the equilibrium real interest rate. Use back of sheet if necessary. 6.2. (10 homework points). Explain what permanent effect such a decrease in the supply will have on the equilibrium price level, and what transitory effect it will have on real interest rates. Assume zero inflationary expectations throughout for simplicity.
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Unformatted text preview: Use back of sheet if necessary. 2 6.3 (10 homework points) If annual inflation (averaged over the prior 12 months) is 3.1% (as in Sept 2006) while the real income “gap” is estimated to be , what nominal Federal Funds Rate target is called for by the “Taylor Rule”? (The actual current target remained 5.25% after last week’s FOMC meeting.) 6.4(10 homework points) If annual inflation (averaged over the prior 12 months) is 3.1% , while real income is estimated to be 0.80% below its trend , what nominal Federal Funds Rate target is called for by the “Taylor Rule”?...
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