Explore BrainMass

Explore BrainMass

    expected inflation rate

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    A. Suppose that the Fed Reserve adopts an inflation targe of 3% for its monetary policy. If the long run growth rate of real GDP(Y) is 2%, then at what rate would the quantity of money (or money supply) have to grow to meet this inflation target?

    b. In the short run, why might the Federal Reserve miss their inflation target of 3%?

    © BrainMass Inc. brainmass.com March 6, 2023, 12:50 pm ad1c9bdddf

    Solution Preview

    a) Inflation rate is actually the change of Price Level
    Since MV=PY and after the growth, M'V = P' Y'
    P' = (1+3%)P = 1.03P and Y' = (1+2%)Y = 1.02Y; V is constant
    Then RHS = P'Y' = ...

    Solution Summary

    Estimate expected inflation rate.