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z [j _E laecon1.lyryx.com C 0 Ti] '51 Print Preferences Help Lab 7 (Question 4) Name: Harrison Ragone Date: 2021-03-24 Question 4 [6 points] The central bank wants to maintain ination at a xed target and to see the economy operating at potential output. It sets its overnight rate (onr) based on the following rule: onr = 3 + 2.6 (1T - 11*) + 0.4 [(Y - Yp)lYp] x 100 a) If the economy is operating at potential output and the ination rate is at the Bank's target. 11*, what is the Bank's onr setting? Note: Keep as much precision as possible during your calculations. Your nal answer should be accurate to at least two decimal places. b) Suppose a boom in a major trading partner increases demand for domestic exports, increases AD and increases real income Y = Yp = 1,060 to Y = 1,240.2. How would the central bank respond (+ for increase, - for decrease)? Basis point change in cm = 0 c) Alternatively, suppose a drop in labour productivity growth pushed the ination rate up by 0.5 percent. How would the central bank respond (+ for increase, - for decrease)? Basis point change in onr = 0 Ofcial Time: 21:59:16 SUBMIT AND MARK SAVE AND CLOSE