ECO 320 Money & Banking Homework

DO YOU KNOW WHY YOUR FRIENDS ARE POSTING BETTER GRADES THAN YOU? — THEY ARE PROBABLY USING OUR WRITING SERVICES. Place your order and get a quality paper today. Take advantage of our current 15% discount by using the coupon code WELCOME15.

Order a Similar Paper Order a Different Paper

                                               ECO 320 Money & Banking Homework

                                                            Week 10 Chapter 18


Numerical Exercise 11:

Suppose that the Fed’s inflation target is 2 percent, potential output growth is 3.5 percent, and velocity is a function of how much the interest rate differs from 5 percent:

%∆V = 0.5 x (i – 5)

Suppose that a model of the economy suggests that the real interest rate is determined by the equation:

r = 8.5 – %∆Y

where Y is the level of output, so %∆Y is the growth rate of output. Suppose that people expect the Fed to hit its inflation target.


A. Calculate the optimal money growth rate needed for the Fed to hit its inflation target in the long run.


B. In the short run, if output growth is just 2 percent for two years and the equation determining the real interest rate changes to r = 4.5 – %∆Y, what money growth rate should the Fed aim for to hit its inflation target in that period?


C. If the Fed instead maintained the money growth rate from part a, what is likely to happen to inflation?


D.  Which policy do you think is better in the long short run?  Which is better in the long run?










Do you require writing assistance from our best tutors to complete this or any other assignment? Please go ahead and place your order with us and enjoy amazing discounts.

Order a Similar Paper Order a Different Paper