Question

Answer questions 10 through 13 with reference to Figure 1. w bis 0225 l 3 .sogo Figure 1 gabond to non ll "10 non hann o LIRANJ Real Interest Rates (%) Enter • "A" if arrow A represents the • "B" if arrow B represents the Aggregate Output ($) • "N" if the impact of the development mentioned is not represented in the diagram. 10. Adoption of a large debt-financed government infrastructure investment program. 11. Onset of a serious recession in the economy of a major trading partner. NOWOCO WE 12. The central banks' decision to head-off a potential recession by easing monetary policy. 13. The sudden availability of a new, expensive robotic technology deemed almost certain to improve production efficiency and raise profitability in a wide variety of industries. 14. List all of the following that are true regarding the Taylor Principle. a. The Taylor Principle maintains that central banks should raise nominal interest rates by more than any observed increase in inflation. b. The purpose of the Taylor Principle is to keep unemployment as close as possible to its "natural" level. c. If a surprisingly high inflation statistic is released during the same weeks as a sudden, large drop in stock prices, the Fed should raise nominal interest rates by more than the increase in inflation. d. The Taylor Principle explains the positive slope of the monetary policy curve

Answer 1

10. Arrow A

This is because the government has invested money so the investment component of IS increases.

11. Arrow B

As there is recession so less output would be demanded by the trading partner, exports will decline.

12. Arrow N

this would hsift the LM curve, which is not mentioned here.

13. Arrow N

this will shift the supply curve, which is not mentined here.