With the help of an IS-LM diagram show the effect of restrictive
monetary policy on output
under flexible exchange rates and with perfect capital
mobility.
With the help of an IS-LM diagram show the effect of restrictive monetary policy on output...
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.
IV. Flexible exchange rates and foreign macroeconomic events Consider an open economy with flexible exchange rates. Let UIP stand for the uncovered interest parity condition. a. In an IS-LM-UIP diagram, show the effect of an increase in foreign output, Y", on domestic output, Y. Explain in words. b. In an IS-LM-UIP diagram, show the effect of an increase in the foreign interest rate,i on domestic output, Y. Explain in words. Given the discussion of the effects of fiscal policy in...
III. Monetary policy under flexible exchange rates a. How does a monetary expansion in an economy with flexible exchange rates affect consumption and investment? b. How does a monetary expansion in an economy with flexible exchange rates affect net exports?
During a period of high unemployment the Federal reserve will use: Multiple Choice restrictive monetary policy to decrease excess reserves in hopes of decreasing interest rates, expansionary monetary policy to increase excess reserves in hopes of decreasing interest rates. restrictive monetary policy to decrease excess reserves in hopes of increasing interest rates. expansionary monetary policy to increase excess reserves in hopes of increasing interest rates.
D) cause a leftward shift of the LM curve. the 2008-09 recession and its aftermath, as compared 13) The biggest difference between the 2008-09 recession and its to the 1981-82 recession and its aftermath, was in the behavior of A) output gap B) total unemployment rate long-term unemployment rate D) short-term unemployment rate exchange rates 14) Monetary policy is more powerful than fiscal policy under_ due to the amplifying effect from changes in interest rates to exchange rates to –...
Discuss how monetary policy (e.g. stimulative or restrictive policy) affects the short-term and long-term rates, respectively, and thus the yield curves.
Draw an IS-LM diagram and add a vertical line showing potential GDP, where the equilibrium GDP falls below potential. a. Discus how monetary policy can be used to restore output to potential. Show the effect on your diagram. Explain.
With reference to the IS-L-BP analysis of a small economy, answer the following questions and provide the required explanation and diagrams. Assuming a country with perfect capital mobility and a flexible exchange rate, examine the effect that an expansionary monetary policy has for the domestic economy. How might the outcome of an expansionary monetary policy differ if the exchange rate is fixed?
a)Draw the effect this policy will have in the IS-LM framework (1 graph, Method 3). Label all axes, curves, the new, and the old equilibrium. b)Using your graph from part (a), describe the equilibrium change in 4 variables listed below following an increase in taxes: 1. Output: 2. The interest rate: 3. Consumption: 4. Investment: c)Following the increase inT, suppose the Fed implements contractionary monetary policy. Draw the effects of the Fed’s reaction in the IS-LM framework (1 graph, Method...
Contractionary Monetary Policy: A) Using the exchange rate market model, illustrate and explain how the monetary policy action identified above may affect the exchange rate. Identify the new equilibrium on the diagram as point B. B) Using the IS-LM model, illustrate and explain how the economy and the unemployment rate may be impacted as a result of the change in the exchange rate in part a. Identify the new equilibrium on the diagram as point B.