2. Use the IS-LM model to predict the short-run effects ofeach of the following shocks on income, the interest rate,consumption, and investment. In each case, explain whatthe Fed should do to keep income at its initial level. Be sureto use a graph in each of your answers.a. After a new high-speed computer chip is invented, manyfirms decide to upgrade their computer systems.b. A wave of credit card fraud increases the frequency withwhich people make transactions in cash.c. A bestseller titled Retire Rich convinces the public toincrease the percentage of their income devoted tosaving.d. The appointment of a new dovish Fed chair increasesexpected inflation.

a) In the IS-LM model, the introduction of a high-speed computer chip leads to increased investment.…

Answered: 2. Use the IS-LM model to predict the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question 8 1 pts Let's say the Aggregate Demand is less than potential output. Our goal is to keep the short run curves in equilibrium with the long run curves. To fix this, you would O increase the required reserves and increase taxes O increase interest rates and increase taxes O decrease government spending and increase taxes O increase the money supply and increase government spending
Please help me with 29 with explanation
Suppose inflation is still high be mid-2022 and the Fed chair announces his/her policy. Suppose his or her approach to monetary policy can be summarized by the following statement: “I care only about inflation. Unemployment is at very low levels for quite some time” b) What would be the effect on the aggregate demand curve?
What is the tradeoff that the Fed faces in the short run? In the short run, the Fed faces a tradeoff between ________. A. the nominal interest rate and the real interest rate B. monetary aggregates and credit aggregates C. short-term interest rates and long-term interest rates D. inflation and unemployment
In which of the following situations is the Fed most likely to raise the federal funds rate target? The Fed is most likely to raise the federal funds rate target when the Fed expects _______. A. high unemployment and a recessionary gap B. high long-term interest rates and a recessionary gap C. low unemployment and an inflationary gap D. banks to hold ample reserves and charge low interest rates on loans thank ss !
The figure to the right shows an economy in an initial long-run equilibrium at point A. a. Using the line drawing tool, show how, if at all, the equilibrium real GDP and the long-run equilibrium price level are affected by a reduction in the quantity of money in circulation. Properly label this line. Carefully follow the instructions above, and only draw the required objects. b. According to your graph, the equilibrium price level while the equilibrium real GDP Price Level LRAS₁ A RGDP1 Real GDP ($ trillions per year) AD₁
Suppose the Federal Reserve decreases the money stock by 12%. Create a Classical View AD-AS graph to show the long-run effect of the Fed's monetary contraction on the US economy.
#6
QUESTION 3 Refer to the graph shown below. Suppose the economy is initially at A but then the Fed adopts a contractionary monetary policy. Using the AS/AD model reasoning, this policy will cause the economy to move to LAS Price level C D 4 0 OC in the short run COC in the short run SAS, SAS, AD AD, SAS, AD, Bel output CAA in the short run and the long run. B in the short run and the long run and A in the long run. and E in the long run.
Consider the figure to the right. If the Bank of Canada decreases the quantity of money in circulation sufficiently to generate a leftward shift in the aggregate demand curve by $0.5 trillion, will actual equilibrium real GDP rise by this amount in the classical model? Explain. 1.) Using the line drawing tool, draw a new AD curve that shows the effects of decreasing the quantity of money in circulation by $0.5 trillion. Label your line 'AD ₂.' 2.) Using the point drawing tool, indicate the economy's new long-run equilibrium price and level of real GDP. Label this point 'E₂.' Carefully follow the instructions above, and only draw the required objects. In the classical model, actual equilibrium real GDP from E₁ to E₂. In other words, with fall by this amount because prices and the economy moves O A. Say's law and flexible interest rates, prices and wages would always lead to full employment at a level of real GDP of $4 trillion. OB. Say's law and inflexible interest rates, prices and…
Question: A recent article (federalreserve.gov/econres/feds/files/2020049pap.pdf) published by the Federal Reserve (the central bank of the USA), suggests "the massive lockdown of the economy" has led to "a large negative demand shock. However, an accompanying increase in unemployment benefits has increased the income of some low-and middle-income households at least temporarily, which could helpfully support aggregate demand". The excerpt above suggests an increase in household income, which might lead to improved aggregate demand. a. Draw a diagram to explain the above situation to show the impact of increased income and how it affects aggregate demand.
What happen to the money market equilibrium when the Fed raises its interest rate target to 6 percent a year following the increase in real GDP? The interest rate _______ and the equilibrium quantity of money _______. A. remains at 5 percent; increases B. rises to between 5 and 6 percent; decreases C. rises from 5 to 6 percent; decreases D. rises from 5 to 6 percent; might increase, decrease, or not change

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