Macroeconomics
GEN 183
Assignment 4
Consider an economy described by the following equations:
p = Ep
+ 0.05(
Y – Y
P
)
800
Y =
800
Ep =
4
In this economy, compute the inflation rate. (20 points)
Suppose that the Fed has the following goals:
Keep the inflation rate at 2 percent.
Keep the economy at maximum employment.
Can the Fed achieve both goals at the same time?
Explain your answer
. (30 points)
Suppose that the priority of the Fed is to keep inflation at 2 percent. What should the Fed do to achieve this goal: buy or sell government bonds in open-market operations?
Explain your answer
. (30 points)
In the country of Wiknam, the velocity of money is constant. Real GDP grows by 3 percent per year, the money stock grows by 6 percent per year, and the nominal interest rate is 2 percent.
What is the real interest rate? (20 points)
Attachments:
9348257_1_Assignment-4-2.docx
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