Economics feedback rule quantity, likely, action, money, price

hanvinh

According to the feedback rule with productivity shocks, in order to stabilize the price level the most likely action by the Fed and the resulting effect on real GDP, respectively, are:
Fed’s action Effect on real GDP
A. Fed decreases the quantity of money the real GDP declines
B. Fed decreases the quantity of money the real GDP remains constant
C. Fed keeps the quantity of money constant the real GDP declines
D. Fed keeps the quantity of money constant the real GDP remains constant

cross-ied

no
Weird question. Schweser and CFAI text have conflicting answers! #@$%

suyash1989

Is it A? Whatever the Fed does the real GDP will decline. And feedback rule won’t just leave quantity constant. Bad reasoning that proves I don’t know it. damnit. but that’s what I’d choose.

zbird2134

After drawing the graphs, I think, its B for price level.
For price level, GDP remains constant at the new level, price declines.
For feedback rule based on GDP growth, GDP remains constant at the new level, but at a higher price.

OmarAdnan

its B
Real GDP is not the same as agg demand…

spartanag07

The answer is A
P 476 Vol 2:
Productivity shock shifts supply curve left  prices rise and GDP declines
Feds response  decrease monet suppy decrease agg demand price level falls and real GDP falls further

Chuckrox

Productivity shock
i.e. POTENTIAL GDP decreases