Unformatted text preview: [* NOTE : STUDENTS ARE REQUIRED TO SUBMIT WRITTEN ANSWERS TO PROBLEM(S) MARKED WITH ASTERISKS (*) IN THEIR DESIGNATED TUTORIAL CLASSES.] *1. Assume the following monetary policy reaction function. ( ) T r π − + = 5 . 02 . , where r is the interest rate, π is the inflation, and π T is the inflation target. (a) Assume that the inflation target is 3% or 0.03. Represent the reaction function graphically. (b) Now assume that the inflation target has been lowered to 1% or 0.01. Represent the reaction function under the new inflation target graphically. (c) How would you draw the reaction function if the inflation target is higher, say, at 5% or 0.05? (d) How would the changes in the inflation target affect the aggregate demand relation in the economy? Textbook pages 332333 (end of Chapter 11): Problems 1, 3, 5, 8 and 9. T UTORIAL 7 (Week 8: beginning 18 th April)...
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 Three '10
 MarkMelatos
 Macroeconomics, Inflation, Monetary Policy, inflation target, BOF, policy reaction function

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