The Taylor rule: John Taylor of Stanford University proposed the following monetary policy rule: R_ - r = m(pi_t - pi) + n Y_t That is, Taylor suggests that monetary policy should increase the real interest rate whenever output exceeds potential. a. What is the economic justification for such a rule? b. Combine this policy rule with the IS curve to get a new aggregate demand curve. How does it differ from the AD curve we considered in the chapter? Consider the response of short-run output to aggregate demand shocks and inflation shocks.

Afirm plans to begin production of a new small appliance. the manager must decide whether to purchase the motors for the appliance from a vendor at $10 each or to produce them in-house. either of two processes could be used for in-house production; process a would have an annual fixed cost of $200,000 and a variable cost of $7 per unit, and process b would have an annual fixed cost of $175,000 and a variable cost of $8 per unit. determine the range of annual volume for which each of the alternatives would be best. (round your first answer to the nearest whole number. include the indifference value itself in this answer.)