(Solution) - What is a nominal anchor for the economy and what -(2025 Original AI-Free Solution)

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What is a nominal anchor for the economy and what is the advantage of using a nominal anchor in choosing a target variable to be fixed by a policy instrument? Explain why a nominal GDP growth rate rule and a Taylor Rule that places equal weight on inflation and output growth each has a nominal anchor. Finally, compare a Taylor Rule that places equal weight on inflation and output growth with one that places equal weight on inflation and the output ratio.