Homework Answers
Contractionary monetary policy shifts the money supply MS curve leftward to MS' in the money market.
In the goods market this shifts the LM curve leftward. New short run equilibrium reaches at e' where equilibrium real interest rate increases to r' and real GDP falls to Y'.
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6. In response to short run deviations from their stated inflation target, the Fed contracts the...
the economy is experiencing a recession and high unemployment a. Use an AD-AS model together with the Fed Funds market to represent ther short ran equilibrium in b. What types of monetary policy...
the economy is experiencing a recession and high unemployment a. Use an AD-AS model together with the Fed Funds market to represent ther short ran equilibrium in b. What types of monetary policy (i.e.. expansionary or restrictive) should the Fed implement? c. In implementing the policy you suggest. which actions (please give at least two actions) should the Fed take to achieve this policy? Explain how t he y policy would address this problem and the consequence of the monetar...
1. Use the IS-LM model to show how an unexpected inflation could result in a higher...
1. Use the IS-LM model to show how an unexpected inflation could result in a higher short-run GDP. 2. Use the IS-LM model to show how an expected inflation could result in a higher short-run GDP. Explain using an IS-LM diagram. Make sure you explain in words what happens in your diagram. 3) Suppose a closed economy is initially in the long run equilibrium. Suppose the monetary base of this economy is $100 million, of which people carry $10 million...
Economics: 1) Why is it possible to change real economic factors in the short run simply...
Economics: 1) Why is it possible to change real economic factors in the short run simply by printing and distributing more money? 2) Explain why a stable 5% inflation rate can be preferable to one that averages 4% but varies between 1-7% regularly. 3) Explain the difference between active and passive monetary policy. 4) Suppose the economy is in long-run equilibrium, with real GDP at $16 trillion and the unemployment rate at 5%, Now assume that the central bank unexpectedly...
of 40> Suppose the Fed sells $500 billion in government securities and the reserve ratio is...
of 40> Suppose the Fed sells $500 billion in government securities and the reserve ratio is 0.1. Calculate the resulting change in the money supply. Be certain to include a negative sign. change in the money supply: $ billion Next, show the impact this open market operation wilEhave on the graph in the short run 10 Solow growth curve Short-run aggregate supply 7 Next, show the impact this open market operation will have on the graph in the short run....
2. Suppose that we are in a world where short-term prices are sticky, but not fixed....
2. Suppose that we are in a world where short-term prices are sticky, but not fixed. The Fed decides that it wants to increase output. A.) According to the Phillips curve, what is the short-run/long-run tradeoff that the Fed is making in this situation? (quid pro quo, Clarice?) B.) What must the Fed do to the money supply? C.) Describe the graphical changes that take place in the market for real money. D.) In the short-run, what happens to interest...
2. Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases money supply by 6%. a) Illust...
2. Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases money supply by 6%. a) Illustrate the short-run effects of the monetary policy by using aggregate demand-aggregate supply model. Be sure to indicate the direction of change in real GDP, the price level and the unemployment rate. b) Illustrate the long-run effects of the monetary policy by using aggregate demand-aggregate supply model....
4. The costs of inflation and of combating inflation The following graph shows a short-run Phillips...
4. The costs of inflation and of combating inflation The following graph shows a short-run Phillips curve for a hypothetical economy. Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position. ? 12 11 10 SRPC 8 4 SRPC 3 2 1 0 1 4 5 UNEMPLOYMENT (Percent) INFLATION RATE Percent) Now, show the long-run effect of a contractionary monetary policy by dragging...
4. The costs of inflation and of combating inflation The following graph shows a short-run Phillips...
4. The costs of inflation and of combating inflation The following graph shows a short-run Phillips curve for a hypothetical economy. Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position. ? 12 11 10 SRPC 8 4 SRPC 3 2 1 0 1 4 5 UNEMPLOYMENT (Percent) INFLATION RATE Percent) Now, show the long-run effect of a contractionary monetary policy by dragging...
You know the following about the economy of a country: Consumption function: C = 12 +...
You know the following about the economy of a country: Consumption function: C = 12 + 0.6(YD) Government spending: G = 20 Investment function: I= 25 -50r Tax collections: T=20 Domestic price level: P = 2 Nominal money supply: MS = 360 Real Money Demand: L(r,Y)=2Y-200r Production function: Y=N Labor supply: N=100 Suppose the Federal Reserve Bank (the Fed) decides to raise interest rates to 0.14 (14%). What level of nominal money supply will achieve the Fed's target in the...
the economy is experiencing a recession and high unemployment a. Use an AD-AS model together with the Fed Funds market to represent ther short ran equilibrium in b. What types of monetary policy (i.e.. expansionary or restrictive) should the Fed implement? c. In implementing the policy you suggest. which actions (please give at least two actions) should the Fed take to achieve this policy? Explain how t he y policy would address this problem and the consequence of the monetar...
of 40> Suppose the Fed sells $500 billion in government securities and the reserve ratio is 0.1. Calculate the resulting change in the money supply. Be certain to include a negative sign. change in the money supply: $ billion Next, show the impact this open market operation wilEhave on the graph in the short run 10 Solow growth curve Short-run aggregate supply 7 Next, show the impact this open market operation will have on the graph in the short run....
2. Suppose that we are in a world where short-term prices are sticky, but not fixed. The Fed decides that it wants to increase output. A.) According to the Phillips curve, what is the short-run/long-run tradeoff that the Fed is making in this situation? (quid pro quo, Clarice?) B.) What must the Fed do to the money supply? C.) Describe the graphical changes that take place in the market for real money. D.) In the short-run, what happens to interest...
2. Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases money supply by 6%. a) Illustrate the short-run effects of the monetary policy by using aggregate demand-aggregate supply model. Be sure to indicate the direction of change in real GDP, the price level and the unemployment rate. b) Illustrate the long-run effects of the monetary policy by using aggregate demand-aggregate supply model....
4. The costs of inflation and of combating inflation The following graph shows a short-run Phillips curve for a hypothetical economy. Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position. ? 12 11 10 SRPC 8 4 SRPC 3 2 1 0 1 4 5 UNEMPLOYMENT (Percent) INFLATION RATE Percent) Now, show the long-run effect of a contractionary monetary policy by dragging...
4. The costs of inflation and of combating inflation The following graph shows a short-run Phillips curve for a hypothetical economy. Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position. ? 12 11 10 SRPC 8 4 SRPC 3 2 1 0 1 4 5 UNEMPLOYMENT (Percent) INFLATION RATE Percent) Now, show the long-run effect of a contractionary monetary policy by dragging...
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