Consider three alternative policies, each with a different set of outcomes in te
ID: 1237966 • Letter: C
Question
Consider three alternative policies, each with a different set of outcomes in terms of output and inflation, as shown in the following table: Output Policy A (1) 500.0, (2) 515.0, (3) 530.5, (4) 546.4, (5) 562.8. Output Policy B (1) 500.0, (2) 500.0, (3) 520.0, (4) 540.0, (5) 562.8. Output Policy C (1) 500.0, (2) 520.0, (3) 535.0 (4) 550.0, (5) 562.8. Inflation Policy A (1) 3.0, (2) 3.0, (3) 3.0, (4) 3.0, (5) 3.0. Inflation Policy B (1) 3.0, (2) 2.8, (3) 2.0, (4) 1.5, (5) 1.5. Inflation Policy C (1) 3.0, (2) 3.2, (3) 4.0, (4) 4.5, (5) 4.5. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /?>
Potential output is 500 in period 1 and rises 3 percent per year. The Fed's objective function is where w=1, and the inflation target is 2.0%.
A- Calculate the value of the objective function over the five-year period for each of the three policies.
B- Which policy is best? Why?
C- Would your answer to part b change if w= 5? Explain.
Explanation / Answer
You still haven't mentioned the objective function in the question and hence data is still insufficient. Please try to understand until and unless you don't mention the objective function, the question is still unsolvable. Please try to find the objective function from the original question and post it as a comment on my answer so that I could help you out in your query in future.