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7. If the current 1-period interest rate is 3%, and the 1-period rate is expected to be 4% in per...
Suppose the economy is operating below potential output. Inflation is 2% and expected inflation is 3%....
Suppose the economy is operating below potential output. Inflation is 2% and expected inflation is 3%. The unemployment rate is 8% and the natural unemployment rate is 4%. 54. iv. Draw a long-run Phillips curve and a short-run Phillips curve consistent with these conditions w. The government implements expansionary monetary policy. As a result, unemployment decreases to 6% and inflation increases to 2.5%. Expectations however. do not change. Show where the economy is on the graph you drew for (a)...
(c) If you cared primarily about inflation and not much about output, which option would you...
(c) If you cared primarily about inflation and not much about
output, which option would you recommend? Why?
(d) Explain the general trade-off that policymakers are faced with
according to the Phillips curve.
5. An oil shock: Consider an economy that begins with output at its potential level and a relatively high inflation rate of 6%, reflecting some recent oil price shocks. As the head of the Federal Reserve, your job is to pick a sequence of short-run output levels...
6.The Aggregate Demand (AD) curve is obtained by combining: (a) The consumption function, planned investment and...
6.The Aggregate Demand (AD) curve is obtained by combining: (a) The consumption function, planned investment and the central bank's policy reaction function. (b) The consumption function and the Taylor rule. (c) The equation for PAE, the central bank's policy reaction and Y = PAE. (d) Y=PAE and the consumption function. (e) The equation for planned investment and the central bank policy reaction function. 7.The AD curve is generally assumed to have a negative slope. However, which of the following would...
Question 3 Which statement fails to describe the behavior of the Phillips curve? A. When output...
Question 3 Which statement fails to describe the behavior of the Phillips curve? A. When output falls short of its potential, inflation decreases. B. nflation changes are positively correlated with short-run output. C. A steeper Phillips curve causes inflation to necessarily increase. D. When output is at potential, inflation remains constant. E. When the economy is booming, inflation increases. Question 4 An increase in consumer expenditures during the holiday season, a decrease in purchases of U.S. goods by foreigners, a...
E) none of the above un equilibrium occurs les intersect. 26. In the Keynesian model, short-run...
E) none of the above un equilibrium occurs les intersect. 26. In the Keynesian model, short-run egun A) where the IS and LA curves intersect. Where the IS curve. Meurve. and FE lines inters C) where the IS curve intersects the FB fine. D) where the LM curve intersects the Fence he money supply will cause 27 In the Keynesian model in the short A) a decrease in output and an increase in the real B) an increase in the...
Suppose the short run Phillips Curve is given by: Inflation = Expected Inflation +.2 -4*Unemployment Rate...
Suppose the short run Phillips Curve is given by: Inflation = Expected Inflation +.2 -4*Unemployment Rate Assume that initially, people expect zero inflation. Draw the short run Phillips Curve and the long run Phillips Curve on a graph On the graph, represent what would happen in the short run if the government decided to run 4% inflation (setting inflation =0.04). . On the graph, represent what would happen in the long run if the government decided to run 4% inflation.
b. Assume that the economy starts with no output gap in the graphs above (at A)....
b. Assume that the economy starts with no output gap in the graphs above (at A). Next, assume an increase in the real interest rate occurs. i. (10) Show this both graphs above and label point B in each. (explain on next page). Label all new axes values that result from this. (16) Fully explain what happens in the short run to output, unemployment, and inflation in response to this increase in interest rates. Styles d. Change of inflation (TA)...
According to the Fisher equation, the real interest rate is given by a zero. b. the...
According to the Fisher equation, the real interest rate is given by a zero. b. the nominal interest rate plus the rate of inflation c. the nominal interest rate minus the rate of unemployment. d. the rate of economic growth. e. the nominal interest rate minus the rate of inflation An implication of sticky inflation is that, through monetary policy changes, the Federal Reserve a. has no impact on inflation b. can alter the real interest rate in the long...
Generally, when economists talk of the interest rate what are they talking about? For the CPI,...
Generally, when economists talk of the interest rate what are
they talking about?
For the CPI, what is the base year? a. It is the year the CPI first appeared. O b. It is the benchmark against which other years are compared, and it changes each year. O c. It is the year prior to the year for which the CPI is calculated. O d. It is the benchmark against which other years are compared, and it changes occasionally. Price...
The economy stays for a few years at point E, and people come to expect that...
The economy stays for a few years at point E, and people come to
expect that the inflation rate will stay at that level in the
future. But then the Fed decides that the inflation rate is too
high, so it unexpectedly adopts a tight money policy to reduce the
inflation rate.
6. At this point in the story, the economy is no longer at a
point on the same short-run Phillips curve that it started on. What
does the...
Suppose the economy is operating below potential output. Inflation is 2% and expected inflation is 3%. The unemployment rate is 8% and the natural unemployment rate is 4%. 54. iv. Draw a long-run Phillips curve and a short-run Phillips curve consistent with these conditions w. The government implements expansionary monetary policy. As a result, unemployment decreases to 6% and inflation increases to 2.5%. Expectations however. do not change. Show where the economy is on the graph you drew for (a)...
(c) If you cared primarily about inflation and not much about
output, which option would you recommend? Why?
(d) Explain the general trade-off that policymakers are faced with
according to the Phillips curve.
5. An oil shock: Consider an economy that begins with output at its potential level and a relatively high inflation rate of 6%, reflecting some recent oil price shocks. As the head of the Federal Reserve, your job is to pick a sequence of short-run output levels...
E) none of the above un equilibrium occurs les intersect. 26. In the Keynesian model, short-run egun A) where the IS and LA curves intersect. Where the IS curve. Meurve. and FE lines inters C) where the IS curve intersects the FB fine. D) where the LM curve intersects the Fence he money supply will cause 27 In the Keynesian model in the short A) a decrease in output and an increase in the real B) an increase in the...
Suppose the short run Phillips Curve is given by: Inflation = Expected Inflation +.2 -4*Unemployment Rate Assume that initially, people expect zero inflation. Draw the short run Phillips Curve and the long run Phillips Curve on a graph On the graph, represent what would happen in the short run if the government decided to run 4% inflation (setting inflation =0.04). . On the graph, represent what would happen in the long run if the government decided to run 4% inflation.
b. Assume that the economy starts with no output gap in the graphs above (at A). Next, assume an increase in the real interest rate occurs. i. (10) Show this both graphs above and label point B in each. (explain on next page). Label all new axes values that result from this. (16) Fully explain what happens in the short run to output, unemployment, and inflation in response to this increase in interest rates. Styles d. Change of inflation (TA)...
According to the Fisher equation, the real interest rate is given by a zero. b. the nominal interest rate plus the rate of inflation c. the nominal interest rate minus the rate of unemployment. d. the rate of economic growth. e. the nominal interest rate minus the rate of inflation An implication of sticky inflation is that, through monetary policy changes, the Federal Reserve a. has no impact on inflation b. can alter the real interest rate in the long...
Generally, when economists talk of the interest rate what are
they talking about?
For the CPI, what is the base year? a. It is the year the CPI first appeared. O b. It is the benchmark against which other years are compared, and it changes each year. O c. It is the year prior to the year for which the CPI is calculated. O d. It is the benchmark against which other years are compared, and it changes occasionally. Price...
The economy stays for a few years at point E, and people come to
expect that the inflation rate will stay at that level in the
future. But then the Fed decides that the inflation rate is too
high, so it unexpectedly adopts a tight money policy to reduce the
inflation rate.
6. At this point in the story, the economy is no longer at a
point on the same short-run Phillips curve that it started on. What
does the...
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