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Unformatted text preview: Chairman Bernanke had been seeking since taking over the helm in 2006. The Fed has a dual mandate on inflation and unemployment, but has no specific target for unemployment. Questions: 1. Why would lowering expectations of future short-term interest rates result in lower long-term interest rates? Are announcements like this more effective in lowering long term rates than QE3 (buying long-term securities)? 2. Are small movements in long-term rates like the one the occurred (a 5.3 basis point decline in the 10 year Treasury) likely to spur much more investment and spending? 3. Are there other dangers in this policy in terms of long-run inflation and asset price bubbles? 4. Should the Fed set a target rate for the long-term unemployment rate as well as the long-term inflation rate? Why are they biased in favor of controlling the inflation rate?...
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