*Suppose a central bank is trying to decide whether to target money growth. Proponents of the move are confident that the new policy would be successful as, under the existing policy regime, they observed a stable statistical relationship between money growth and inflation. What warning might you issue to the central bank when they ask your advice?
Answer to relevant QuestionsA scatter plot can reveal a relationship between two indicators. Construct a scatter plot of annual data beginning in 1959 for inflation and money growth. Measure these as the percent change from a year ago of consumer ...Describe the determinants of the long-run real interest rate and speculate on the sort of events that would make it fluctuate. Given the expected relationship between the real interest rate and investment, how would you explain a scenario where investment continued to fall despite low or even negative real interest rates? Suppose the economy is in short-run equilibrium at a level of output that exceeds potential output. How would the economy self-adjust to return to long-run equilibrium? Explain why the rise in oil prices in 2008 created a particularly difficult situation for Federal Reserve policymakers.
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