Suppose that the Fed is concerned about unemployment being too high as the economy is producing...
Suppose that the Fed is concerned about unemployment being too high as the economy is producing below potential levels, so the Fed buys bonds. Shift the aggregate demand (AD) curve on the graph below to show the impact of the Fed's actions on the economy.
Homework Answers
Fed's purchase of bonds will increase money supply, reducing interest rate. Lower interest rate will increase investment, thus increasing aggregate demand. The AD curve will shift rightward, increasing price level and increasing real GDP.
In following graph, AD0 and SRAS0 are initial aggregate demand and short run aggregate supply curves intersecting at point A with initial price level P0 and real GDP Y0. When AD rises, AD0 shifts rightward to AD1, intersecting SRAS0 at point B with higher price level P1 and higher real GDP Y1.
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Suppose that the Fed is concerned about unemployment being too
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1. The economy is experiencing high unemployment and a low rate of economic growth and the...
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1.)Suppose, the government is concerned about breaches in
government data security and has decided to spend
$1billion
dollars on improving data security. Government will not cut
spending in other areas of the budget, so it will likely have to
issue new government bonds to finance this increase in government
spending. Use the graph below to show the impact of the
aforementioned on the economy by shifting the appropriate
curve(s).
2.)
Suppose the US government has decided to expand its budget...
The following graph represents the money market in a
hypothetical economy. As in the United States, this economy has a
central bank called the Fed, but unlike in the United States, the
economy is closed (that is, the economy does not interact with
other economies in the world). The money market is currently in
equilibrium at an interest rate of 4% and a quantity of money equal
to $0.4 trillion, as indicated by the grey star.? Suppose the Fed announces that...
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