When the Fed changes monetary policy to reduce the rate of inflation, which of the following...
When the Fed changes monetary policy to reduce the rate of inflation, which of the following should occur in the medium run?
(A) The AD curve should shift to the right.
(B) The IA line should shift down.
(C) The AD curve should shift to the left.
(D) The IA line should shift up.
Homework Answers
Ans) the correct option is C) The AD curve should shift to the left.
When the Fed changes monetary policy to reduce the rate of inflation, money supply will reduce and AD shifts to the left.
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Since monetary policy changes through the fed funds rate occur with a lag, policymakers are usually...
Since monetary policy changes through the fed funds rate occur with a lag, policymakers are usually more concerned with adjusting policy according to changes in the forecasted or expected inflation rate, rather than the current inflation rate. In light of this, suppose that monetary policymakers employ the Taylor rule to set the fed funds rate, where the inflation gap is defined as the difference between expected inflation and the target inflation rate. Assume that the weights on both the inflation...
Since monetary policy changes through the fed funds rate occur with a lag, policymakers are usually...
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Since monetary policy changes through the fed funds rate occur with a lag, policymakers are usually more concerned with adjusting policy according to changes in the forecasted or expected inflation rate, rather than the current inflation rate. In light of this, suppose that monetary policymakers employ the Taylor rule to set the fed funds rate, where the inflation gap is defined as the difference between expected inflation and the target inflation rate. Assume that the weights on both the inflation...
Since monetary policy changes through the fed funds rate occur with a lag, policymakers are usually more concerned with adjusting policy according to changes in the forecasted or expected inflation rate, rather than the current inflation rate. In light of this, suppose that monetary policymakers employ the Taylor rule to set the fed funds rate, where the inflation gap is defined as the difference between expected inflation and the target inflation rate. Assume that the weights on both the inflation...
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