Range of Uncertainty in the Price Level & Inflation
Not what you're looking for?
Suppose that the Fed is required to keep the inflation rate between 1 percent and 2 percent a year but with no requirement to keep trend inflation at the midpoint of this range. The Fed achieves its target.
a. If initially the price level is 100,
i. Calculate the highest price level that might occur after 10 years.
ii. Calculate the lowest price level that might occur after 10 years.
iii. What is the range of uncertainty about the price level after 10 years?
b. Would this type of inflation goal serve the financial markets well and provide an anchor for inflation expectations?
Purchase this Solution
Solution Summary
Given the initial price level, and the upper and lower limits of future inflation, this solution shows how to calculate the range of future uncertainty about the price level after 10 years.
Solution Preview
a) Let IR = Inflation Rate
i) Let IR = 2%
CPIfinal = CPIinitial(1 + IR)^10
CPIfinal = 100(1.02)^10
CPIfinal = ...
Purchase this Solution
Free BrainMass Quizzes
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.