QUESTION 6 Four panels in the figure below show four different evolutions of an economy's output over a year. In all figures, the solid line depicts the actual level of output, the dashed line stands...

Extracted text: QUESTION 6 Four panels in the figure below show four different evolutions of an economy's output over a year. In all figures, the solid line depicts the actual level of output, the dashed line stands for the full-employment output, and the markered line shows the interest rate set by the central bank. Panel A Panel B 102.50 0.06 101.00 0.05 100.80 100.60 100.40 100.20 102.00 0.05 0.04 101.50 0.04 0.03 101.00 0.03 0.02 100.50 0.02 100.00 99.80 0.01 100.00 0.01 99.60 99.40 99.20 99.50 99.00 -0.01 -0.01 actual output (left axis) actual output (left axis) full-employment output (left axis) full-employment output (left axis) -interest rate (right axis) - interest rate (right axis) Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20


Extracted text: Panel C Panel D 101.00 0.04 101.00 0.04 100.00 100.50 0.03 0.03 99.00 98.00 100.00 0.02 0.02 97.00 96.00 95.00 94.00 99.50 0.01 0.01 99.00 93.00 92.00 98.50 -0.01 -0.01 -actual output (Ileft axis) - actual output (left axis) full-employment output (left axis) - full-employment output (left axis) interest rate (right axis) • interest rate (right axis) Assume that inflation is 1% throughout the entire year and the inflation target is 2%. In which of the four panels the interest rate set by the central bank is inconsistent with the Taylor rule? O A. panel A O B. panel B O C. panel C O D. panel D Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 * Sep-20 Oct-20 Nov-20 Dec-20