Explain why the expansionary monetary policy becomes ineffective during a liquidity trap? Suppose the government takes...
Explain why the expansionary monetary policy becomes ineffective during a liquidity trap? Suppose the government takes an expansionary fiscal policy by increasing its expenditure on military equipment. Here, would an expansionary fiscal policy be more effective than expansionary monetary policy to escape a liquidity trap?
Homework Answers
In a liquidity trap the demand for money with the people is much more than the money available in the market, so as the FED increase the money supply through an expansionary money policy the money is again stored by the people in the market and they wait for the interest rate to rise. IN that case, government expenditure will increase the income of the people and that will increase the interest rate making it more effective in money trap.
An expansionary fiscal policy is part of the aggregate demand curve in the market, an increase in the fiscal policy will increase the demand and shift the equilibrium at a higher price and output, thereby taking the economy out recession .
Add Answer to:
Explain why the expansionary monetary policy becomes ineffective
during a liquidity trap? Suppose the government takes...
Why may an expansionary monetary policy be less effective than a restrictive monetary policy? the Federal...
Why may an expansionary monetary policy be less effective than a restrictive monetary policy? the Federal Reserve Banks are always willing to make loans to commercial banks which are short of reserves. commercial banks may not be able to find loan customers. fiscal policy always works at cross purposes with an expansionary monetary policy. changes in exchange rates complicate an expansionary monetary policy more than it does a restrictive monetary policy.
IS-LM-FX Model and Stabilization Policy Suppose the fiscal authority of an economy implements expansionary policy. Specifically,...
IS-LM-FX Model and Stabilization Policy Suppose the fiscal authority of an economy implements expansionary policy. Specifically, the government increases its spending. Consider the graphical illustration of the IS-LM-FX model and the analysis of the policy change, and answer the following questions comparing the initial equilibrium before any change was implemented to the equilibrium that prevails after the expansionary fiscal policy is implemented. a) What happens to the consumer spending, why? explain. b) What happens to the investment spending, why? explain....
Question 1 Fiscal policy will have its greatest impact if monetary policy is __________. contractionary expansionary...
Question 1 Fiscal policy will have its greatest impact if monetary policy is __________. contractionary expansionary accommodating opposing 3. When aggregate demand increases, firms with market power—like Walmart—are MOST likely to raise __________. prices output wages sales tax Question 4 The money supply fell during the Great Depression because __________. the monetary base also fell the public held less currency, and the banks held less excess reserves the public held more currency, and the banks held more excess reserves the...
Suppose that the central bank carries a brief expansionary monetary policy and at the same time...
Suppose that the central bank carries a brief expansionary monetary policy and at the same time there is a surge in economic activity. As a result of these two facts, it is observed that short-term interest rates increase and that, in equilibrium, agents choose to hold more monetary assets. a) Does this information contradict the expected negative relationship between interest rates and money demand? Explain. b) Explain what happens (and why) in terms of supply and demand for funds in...
Suppose the Fed wanted to engage in an expansionary monetary policy. Which of the following should...
Suppose the Fed wanted to engage in an expansionary monetary policy. Which of the following should it do? a. Increase the reserve requirement ratio. b. Buy bonds on the open market. c. Sell bonds on the open market. d. Lower taxes. e. Increase the discount rate. The interest rate at which banks can borrow funds from the Fed is known as… a. the federal funds rate. b. the discount rate. c. the prime rate. d. the real interest rate. e....
1) of the Central Bank of Kuwait puts in place an expansionary monetary policy, its decision...
1) of the Central Bank of Kuwait puts in place an expansionary monetary policy, its decision is based on A) the fact that the economy is at ful employment B) Expectation of excessive inflation in the future C) the fact that the economy is in an expansion D) Unemployment level is high 2) When the interest rate is set at a very low rate A) the opportunity cost of holding money is very low B) the money demand will shift...
Qn. For each of these statements identify if they are true or false and explain why. a.The increase in revenue taxation received by the government during an economic boom is due to discretionary fisca...
Qn. For each of these statements identify if they are true or false and explain why. a.The increase in revenue taxation received by the government during an economic boom is due to discretionary fiscal policy. b.The legislative process which is required to implement fiscal policy often make it easier to use than monetary policy. c.A law requiring the government to balance its budget in each year would work against‘automatic stabilisers’. d.The government ‘purchases multiplier’ always has a positive sign and...
Fiscal Policy: Government can control the economy in a big way by adjusting its expenditure. The...
Fiscal Policy: Government can control the economy in a big way by adjusting its expenditure. The group of mechanisms using expenditure form the fiscal policy. When government spends more it can lead to more demand and that means more price increase. This means both high growth and high inflation. And it works in the reverse too. Thus, governments try to spend more during periods of low growth & low inflation and cut spending during periods of high growth & high...
In an economy where the money supply and aggregate demand have been decreased by the Central...
In an economy where the money supply and aggregate demand have been decreased by the Central Bank, you know that the Central Bank is using 答案选项组 a contractionary monetary policy. an expansionary monetary policy. a loose monetary policy. follow expansionary fiscal policy How does monetary policy affect the market? 答案选项组 Monetary policy has a more of an impact on consumption than investment. Monetary policy has a more of an impact on government spending than investment. Monetary policy has an indirect...
32. The rational expectations hypotheses implies that discretionary macroeconomic policy is: a. relatively effective in both...
32. The rational expectations hypotheses implies that discretionary macroeconomic policy is: a. relatively effective in both the short run and long run b. relatively effective in the short run but ineffective in the long run c. relatively ineffective in both the short run and long run d. effective in the long run since decision makers will continually make predictable, systematic errors 33. The modern view of the Phillips curve suggests that a. when inflation is less than anticipated, unemployment will...
1) of the Central Bank of Kuwait puts in place an expansionary monetary policy, its decision is based on A) the fact that the economy is at ful employment B) Expectation of excessive inflation in the future C) the fact that the economy is in an expansion D) Unemployment level is high 2) When the interest rate is set at a very low rate A) the opportunity cost of holding money is very low B) the money demand will shift...
Most questions answered within 3 hours.
-
draw product of cyclohex-2-en-1-one, Sodium methoxide and
hydronium workup
asked 28 seconds from now -
In a certain state, about 65% of drivers who are arrested for
driving while intoxicated (DWI)...
asked 17 seconds ago -
A single NEC SX-9 vector processor unit (VPU) has a peak
arithmetic
performance of 102.4 GFs/s....
asked 18 minutes ago -
. Determine the hourly multiplication factors
such that the total daily water consumption will equal 15,000...
asked 19 minutes ago -
A budgeting Web site reported that 35% of U.S. households have
withdrawn money from a 401(k)...
asked 17 minutes ago -
In this assignment, you will write a minimum two-page paper that
explains the treatment of internal...
asked 22 minutes ago -
Direct marketing is also referred to as Question 50 options: 1)
one-to-one marketing. 2) business-customer marketing....
asked 25 minutes ago -
INK Ltd is grocery retailer with 103 shops around South
Australia and Tasmania. The company has...
asked 30 minutes ago -
HOW BEER IS MADE
The beer making process is an art. It takes time, patience and...
asked 31 minutes ago -
What two methods could be used to purify the dimethyl
fumarate?
Based on the 12 Principles...
asked 40 minutes ago -
Reflect upon the readings and videos as well as our Media Monday
discussion. Integrating concepts from...
asked 45 minutes ago -
1. A cylindrical capacitor with A = 0.01, B = 0.1 and a length
of 5...
asked 52 minutes ago