Suppose the Fed is considering three different policy rules, as shown in the following table. $$\begin{array} { | c | c | c | c | }
\hline \text { Inflation } & \begin{array} { c }
\text { Policy Rule 1 } \
\text { (R) }
\end{array} & \begin{array} { c }
\text { Policy Rule 2 } \
\text { (R) }
\end{array} & \begin{array} { c }
\text { Policy Rule 3 } \
\text { (R) }
\end{array} \
\hline 0 & 2 & 2 & 3 \
\hline 1 & 3 & 4 & 5 \
\hline 2 & 4 & 6 & 7 \
\hline 3 & 5 & 8 & 9 \
\hline 4 & 6 & 10 & 11 \
\hline 5 & 7 & 12 & 13 \
\hline
\end{array}$$ (A) What is the difference between Rule 1 and Rules 2 and 3?
(B) What is the difference in the target infletion rate between Rules 2 and 3?
(C) Suppose the Fed is curtenty following Rule 2 and shifts to Rule 3 . Which way wril the $A D$ curve shift? Why wald the Fed make such a chenge in policy?

Question

Suppose the Fed is considering three different policy rules, as shown in the following table. $$\begin{array} { | c | c | c | c | } 
\hline \text { Inflation } & \begin{array} { c } 
\text { Policy Rule 1 } \
\text { (R) }
\end{array} & \begin{array} { c } 
\text { Policy Rule 2 } \
\text { (R) }
\end{array} & \begin{array} { c } 
\text { Policy Rule 3 } \
\text { (R) }
\end{array} \
\hline 0 & 2 & 2 & 3 \
\hline 1 & 3 & 4 & 5 \
\hline 2 & 4 & 6 & 7 \
\hline 3 & 5 & 8 & 9 \
\hline 4 & 6 & 10 & 11 \
\hline 5 & 7 & 12 & 13 \
\hline
\end{array}$$ (A) What is the difference between Rule 1 and Rules 2 and 3?
(B) What is the difference in the target infletion rate between Rules 2 and 3?
(C) Suppose the Fed is curtenty following Rule 2 and shifts to Rule 3 . Which way wril the $A D$ curve shift? Why wald the Fed make such a chenge in policy?

Quizplus · Accepted Answer

The Answer of Suppose the Fed is considering three different policy rules, as shown in the following table. $$\begin{array} { | c | c | c | c | } 
\hline \text { Inflation } & \begin{array} { c } 
\text { Policy Rule 1 } \
\text { (R) }
\end{array} & \begin{array} { c } 
\text { Policy Rule 2 } \
\text { (R) }
\end{array} & \begin{array} { c } 
\text { Policy Rule 3 } \
\text { (R) }
\end{array} \
\hline 0 & 2 & 2 & 3 \
\hline 1 & 3 & 4 & 5 \
\hline 2 & 4 & 6 & 7 \
\hline 3 & 5 & 8 & 9 \
\hline 4 & 6 & 10 & 11 \
\hline 5 & 7 & 12 & 13 \
\hline
\end{array}$$ (A) What is the difference between Rule 1 and Rules 2 and 3?
(B) What is the difference in the target infletion rate between Rules 2 and 3?
(C) Suppose the Fed is curtenty following Rule 2 and shifts to Rule 3 . Which way wril the $A D$ curve shift? Why wald the Fed make such a chenge in policy?

Suppose the Fed Is Considering Three Different Policy Rules, as Shown