Question

1 .Central banking reduces which of the three lags most? WHY?

a. Now argue why one of these three Fed goals is most important.

b. After the Federal Funds rate is driven to 0%, what else can a central bank do to stimulate an economy?

2. Why is an explicit inflation target a good policy?

a. Why is an explicit inflation target a bad policy?

b. MV=PQ If M grows, then what happens to each of V, P and Q?

3. Explain what happens to V, P and Q?

a. Keynes said in the short-run P can’t change. If V also can’t change then what happens to MV=PQ when M increases?

Answer 1

Ans

1 administrative lag because monetary authority can most easily control this lag

2 reducing inflation is considered main goal

3 It can use negative interest rates, bailouts etc

4 Because it solves problem of ASSYMETRIC information and resulting problems

Can answer only 4 parts according to Chegg policy