Chapter 24: Q. 5 (page 655)
Why does the divine coincidence simplify the job of policymakers?
When monetary policy achieves the dual goals of price stability and economic activity stability in the economy, it is referred to as a divine coincidence. This simplifies the job of policymakers.
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It can be an interesting exercise to compare the purchasing power of the dollar over different periods in history. Go to https://www.bls.gov/data/inflation_ calculator.htm to find the inflation calculator. Use this calculator to answer the following questions. a. If a new home cost \(125,000 in 2017, what would it have cost in 1950? b. The average annual household income in 2017 was about \)50,000. What would this income have been in 1945? c. An average new car cost about $25,000 in 2017. What would this car have cost in 1945?
d. Using your results from parts (b) and (c), did the purchase of a new car consume more or less of an average household’s income in 2017 than in 1945?
In the United States, many observers have commented in recent years on the “political gridlock in Washington D.C.” and referred to Congress as a “Do Nothing Congress.” What type of policy lag is this describing?
“If autonomous spending falls, the central bank should lower its inflation target in order to stabilize inflation.” Is this statement true, false, or uncertain? Explain your answer
Suppose that f is determined by two factors: financial panic and asset purchases.
Go to the St. Louis Federal Reserve FRED database, and find data on the personal consumption expenditure price index (PCECTPI), the unemployment rate (UNRATE), and an estimate of the natural rate of unemployment (NROU). For the price index, adjust the units setting to "Percent Change From Year Ago." For the unemployment rate, adjust the frequency setting to "Quarterly." Select the data from through the most current data available, download the data, and plot all three variables on the same graph. Using your graph, identify periods of demand-pull or costpush movements in the inflation rate. Briefly explain your reasoning.
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