Microeconomics

Microeconomics Name Course Instructor Date Macroeconomics a) Credit easing refers to measures that financial institutions employ to relax the monetary stance when the rates sanctioned by monetary policy go low (mhhe.com). When the policy target rate tends towards zero, central banks use various tools to counter the situation, one of these tools being the credit easing. b) Central banks employ a number of credit easing tools. These include shifting the composition of the balance sheet towards that bear a credit risk which borrowers can default (mhhe.com). This may involve the sale of short-term US Treasury Bills and the purchase of commercial paper with similar maturity. a) Taylor Rule is a monetary policy law that sets a stipulation on how much the central bank should adjust the nominal interest rate in response to shifts in levels of inflation, output and other economic conditions (Taylor, 1993). b) The expectation trap is a theory that attempts to explain the occurrence of high inflation at particular points in history (Daniel, 2002). According to this theory, fear of infringing on public’s inflation expectations pushed the Fed into creating high inflation in the US. This was a conscious decision...