If the Fed were to set policy according to the Taylor rule, then if real GDP falls by 2 percent below potential GDP, the Fed should:
A. raise the real federal funds rate by 1 percentage point.
B. reduce the real federal funds rate by 1 percentage point.
C. raise the inflation rate by 1 percentage point.
D. change the real federal funds rate until inflation hits the target rate of 4 percent.
B. reduce the real federal funds rate by 1 percentage point.
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Consider the market for Hewlett-Packard printers, depicted in the figure to the right, where the supply of HP printers has increased from S1 to S2. What would cause the supply curve for HP printers to shift to the right?
A. a decrease in the price of a substitute in production B. a decrease in the price of an input C. a higher expected future price for HP printers D. both A and B E. all of the above
When the Fed ________, the U.S. foreign exchange rate falls
A) increases the size of the multiplier B) raises the interest rate C) raises taxes on interest income D) buys government securities E) sells government securities