Use a graph to show the differences in the central bank reaction function if the Fed is more tolerant or less tolerant of deviations from inflation in the short run
What will be an ideal response?
If the central bank reaction function is relatively flat, as is represented by Central bank reaction function1, the Fed is more tolerant of deviations from inflation in the short run, and therefore will change the interest rate by a smaller amount in response to the deviation between the current inflation rate and the target inflation rate.
If the central bank reaction function is relatively steep, as is represented by Central bank reaction function2, the Fed is less tolerant of deviations from inflation in the short run, and therefore will change the interest rate by a larger amount in response to the deviation between the current inflation rate and the target inflation rate.
You might also like to view...
The supply of loanable funds curve has a ________ slope and the demand for loanable funds curve has a ________ slope
A) negative; positive B) positive; negative C) negative; negative D) positive; positive E) vertical; horizontal
What does it mean for a buyer or seller to be a price taker?
Work rules that are designed to protect jobs and maximize employment at any level of output are thought to lower worker productivity.
Answer the following statement true (T) or false (F)
Excise taxes on products like gasoline and tobacco are regressive.
Answer the following statement true (T) or false (F)