Chapter 3

Question 1

Discribe CBs loss function

Answer 1

L=(y-ye)^2+ß(π-πT)^2

Disultility which occurs of being away from the inflation target (π-πT) and from equilibrium output (y-ye), and the preference for meeting the inflation.

Question 2

Which preference has the CB if ß > 1?

Answer 2

CB is inflation avers

Question 3

Which preference has the CB if ß < 1?

Answer 3

CB is unemployment avers

0

Question 4

Which preference has the CB if ß = 1?

Answer 4

CB is indifferent

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Question 5

MR berechnen (2 Perioden)

Answer 5

1. PC in loss function für π1 einsetzten
2. Gleich 0 setzten
3. Nach y ableiten
4. PC nach π0 auflösen und für π0 einsetzten. Achtung Vorzeichen!
5. ÷2
6. Nach (y1-ye)=… auflösen, rechte Seite vereinfachen

Question 6

What happens to MR, if a (Alpha) increases, ie increase in slope of PC?

Answer 6

Slope of PC becomes steeper (Kurve verschiebt sich nach links/ oben) –> (πt-πT)= -a ß (yt-ye)
MR becomes flatter

Question 7

What happens if CB inflation aversion increases? ß increases (ß=0–> ß=1)

Answer 7

CB becomes inflation avers
MR becomes flatter (indifferenz Kurven, 90° wende 0)
Accepts large increase in unemployment to attain inflation target