Answer in step by step with explanation.Don't use Ai and chatgpt. 2. Demonstrate the effect of the following shocks in the basic IS-LM model in the short run.Show what happens to output and the real interest rate and explain intuitively. Assumethat the central banks holds money supply constant unless otherwise specified.a. Introduction of inefficient regulation makes firms less willing to investb. Loss of trust in domestic currency makes people switch to foreign currency orother assetsc. The government raises taxesd. An appointment of a new hawkish central banker reduces inflation expectations.

shocks impact the equilibrium of output and interest rates. Negative demand shocks (a, b, c)shift…

Answered: 2. Demonstrate the effect of the…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5CQQ

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4. Monetary policy and fiscal policy often change at the same time. a. Suppose that the government wants to raise investment but keep output constant. In the IS-LM model, what mix of monetary and fiscal policy will achieve this goal? b. The government cuts taxes and ran a budget deficit while the central bank pursued a tight monetary. What effect should this policy mix have?
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17. In the Keynesian model, an expansionary monetary policy will lead to * O Lower real interest rates and more investment Higher real interest rates and higher real income Higher real interest rates and lower prices O Lower real interest rates and lower prices Вack Next Clear form TOSHIBA
2. Suppose both the Fed and the ECB always use the Taylor rule. What happens to the EURUSD exchange rate (number of dollars per euro) today if: a. the inflation differential, which is defined as inflation rate in Europe - inflation rate in USA, increases today? b. it is announced today (time t) that the U.S. real GDP growth rate will increase at t+1?
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← 2:12 Principles of Macroe... Vo LTE 4G+ R vecmeccssary: what would have happened to aggregate demand and aggregate output: 6 Consider two economies - Avalon and Eternia. In Avalon, the central bank uses interest rates to conduct monetary policy. In Eternia, the central bank conducts monetary policy by changing the money supply. a Which economy would have a more effective monetary policy? Explain. b Which country would have higher inflation? Explain. 33% c Why can't Avalon and Eternia set both interest rates and money supply? 7 This chapter explains that expansionary monetary policy reduces the interest rate and thus stimulates demand for consumption and investment goods. Explain how such a policy also stimulates imports, exports and overall net exports. (You may need to refer to chapter 13 to answer this question.) 8 Suppose economists observe that an increase in government spending of $10 billion raises the total demand for goods and services by $30 billion. a Is crowding out…
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Consider the model of supply and demand for central bank money. Assumethat there there are commercial banks. Suppose that people hold 20% of their moneyin currency and 80% of their money in deposits. The central bank sets the reserve-todeposit ratio at 10%. In the first period, the central bank increases the supply of moneyby $200, buying bonds through Open-Market Operations. Use this information to answerthe following questions:(a) For the second period (after the central bank has injected $200 in theeconomy), calculate: (i) the demand for currency, (ii) the amount of deposit held atthe commercial banks, (iii) the demand for reserves held at the central bank, and(iv) the demand for the high-powered money. How much is the additional moneysupply created at the end of the second period?2(b) How much is the additional money supply created at the end of the thirdperiod?(c) As time continues, additional money supply will be created. Calculatethe total increase in the money supply as a…
Consider a recently founded Del Griffith economy, Park, whose politicians are debct economic policies to implement. They are whether or not to found a central bank and Considering their own dollars for all the rency. Right now, they use Us transactions and thus are subject to monetary policy dicfated by the Federal Reserve. Banks in the economy like to hold reserves, when interest rates are low, and dislike holding reserver when interest rates and high, and can borrow and lend with us banks at the us Federal funds Rate. The government of Del Griffith pack issues debt to finance it's operations that is indexed to the US federal funds rate. A 2 Question Draw the supply and demand Curves market for reserves. Be sure to label the axes. in the correctly! Then explain why each are has the shape that it does, 1.2., why the demand corve is downward sloping, e.t.c.
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How can a central bank decrease the money supply? O a. By selling securities O b. All of the answers are correct O c. By decreasing the target overnight interest rate O d. By engaging in "quantitative easing"
QUESTION 3 How are purchases or sales of foreign currency by a central bank are related to monetary policy? O A. a purchase of foreign currency will increase money supply B. a purchase of foreign currency will reduce the nominal exchange rate O C.a purchase of foreign currency will reduce money supply O D.a purchase of foreign currency will increase the nominal exchange rate

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