ECON 2035 : EXAM 3 Tests
Document Summary
Heather: from the quantity equation of money, we can derive inflation as = % change in m + % change in v - % change in y. In the long run, the two variables outside the influence of the fed are inflation and output growth. Y y* / y* = -2(u u*: according to taylor rule, the fed should increases interest rates when inflation rises above its target rate, and. Decrease interest rates when output falls below its potential: the principle that monetary policy can not permanently impact real variable is called long-run money. Neutrality: suppose the economy is producing at the potential level of output. Further assume that there is a substantial fall in stock prices. If output is below potential output at a nominal interest rate of zero, a central bank cannot effectively conduct. Further assume that corn is a major ingredient in many types of food based intermediate goods used in production.
