Why can monetary policymakers neutralize demand shocks but not supply shocks?
Monetary policy does not aggregate supply because aggregate supply is dependent on wage rate,price level,cost of production,state of technology.Aggregate supply is not dependent on interest rate.
Monetary policy changes interest rate and interest rate affects borrowing and income,and thus monetary policy only affects AD.
Why can monetary policymakers neutralize demand shocks but not supply shocks?
Do temporary negative supply shocks place policymakers in a predicament? Explain why. Discuss the dilemma they may encounter when stabilizing inflation and economic activity.
Create your own monetary policy rule that would insulate the aggregate economy completely from aggregate demand shocks - so that neither inflation nor output would change if an aggregate demand shock hit the economy. Explain why your policy works. (Assume that policymakers can observe the aggregate demand shocks directly)
what is you fiscal policy recommendation to counter the demand and supply shocks of the corona virus on the economy? can your policies avert a recession? why or why not ?
1) Cost-push supply shocks & demand-pull shocks are Keynesian theories of a. welfare benefits. b. inflation episodes. c. labor force participation. d. wartime.
1. Which of the following would shift the short-run aggregate supply curve to the right? A change in the law requiring overtime pay for anyone working more than 30 hours a week A reduction in the minimum wage An increase in oil prices An increase in payroll taxes 2. The fact that investors can always hold cash creates: an upward bound on nominal interest rates. negative nominal interest rates. a problem for monetary policymakers when the short-term interest rates approach...
Use of discretionary policy to stabilize the economy Should policymakers use monetary policy, fiscal policy, or both in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy and the pros and cons of using these tools to lessen economic fluctuations. The following graph shows a hypothetical aggregate demand curve (AD), short-run aggregate supply curve (AS), and long-run aggregate supply curve (LRAS) For the economy in May 2020. According to the...
Monetary Policy and Money Markets a. Graph the demand and supply of money at equilibrium. Identify the area of excess supply of money and excess demand for money. b.Graph the impact of contractionary monetary policy on Aggregate Demand through monetary policy transmission into the economy- use 3 graphs to illustrate the impact. Graph and list all contractionary monetary policy. c. Explain the transmission of expansionary monetary policy transmission and list all expansionary monetary policy tools d. Define the equation of...
Use supply and demand diagrams to illustrate the qualitative effect of the following shocks to the Canadian beef market. In each case, explain what happens to the equilibrium price and quantity using words. (a) A new study shows there are significant health risks associated with consuming too much beef. (b) Personal income tax rates fall by 50%. (c) A new plant-based “meatless” burger is introduced onto the market. (d) An outbreak of BSE (“mad cow disease”) is found in a...
In the modern synthesis (where we have a short run aggregate supply curve), negative demand shocks A reduce the price level B reduce output C reduce output and the price level D reduce output and increase the price level E increase output and reduce the price level
Imagine an economy is experiencing an inflationary gap. a. [1point] Give three examples of demand shocks that might have led to it. b. [1point] Give three examples of supply shocks that might have caused to the inflationary gap.