words limit 150!!!!

To answer this question, use the data that you find in the above chart (also found in the model spreadsheet).

In this class, we have discussed interest rate equations that indicate what the central bank might or should do, based on the work of Professor John Taylor the so-called Taylor Rules.

(Part A 5 Points) Discuss the Taylor Principle. According to this principle, if inflation rises by one percent, by how much should the nominal policy interest rate (Federal Funds in US) rise? Should we see a rise or fall in the real interest rate when the inflation rate rises? Why?

(Part B 5 Points) Looking at the graph below, comparing the (forecast) for 2023 with what is now (largely) history for 2022, would you conclude that the Fed as followed the Taylor Principle as discussed in part A above? Why or why not? Hint: just compare the numbers between the two years leave the why part for the section below.

(Part C 10 Points) Does the Feds interest rate policy appear to be achieving its goal of lowering inflation in 2023? Why or why not? (4 points). Some have criticized the Feds plans for interest rate as to stringent and possibly risking a needlessly severe recession. Is there any indication that such a criticism might be true from the data table? Why might that criticism be seen as true and how might the Fed modify its policy in 2023 or beyond? (4 points). If the Fed decides to conduct a looser monetary policy in 2023 that the one shown in the table, what might be the risks of doing so? (Hint: note that inflation remains above the target? Discuss risks to inflationary expectations.)

Country: USA Sourco cRen A. Main Data Country: USA Sourco cRen A. Main Data