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.
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At year's end, the components inventory is found to be $200 thousand above its beginning-of-the- year level, and finished goods inventory is up $30 thousand over its starting level. Calculate planned investment, unplanned investment, and actual (total) investment.
Which of the following is least likely to cause a shift of the consumption function?
a. A change in the level of saving b. A change in consumer expectations about future prices c. A change in household wealth d. A change in investment spending e. A change in the interest rate