3. A central bank is considering two alternative monetary policies:holding the money supply constant and letting the interest rate adjust, oradjusting the money supply to hold the interest rate constant.In the IS–LM model, which policy will better stabilize output under the followingconditions? Explain your answer using the graph.a. All shocks to the economy arise from exogenous changes in the demand for goods andservices.b. All shocks to the economy arise from exogenous changes in the demand for money.Make sure your graphs are clear and labeled correctly.

"Since you have asked multiple questions, we will solve the first question for you. If you want any…

Answered: 3. A central bank is considering two…

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 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.
The economy of Carlsberg is presently in equilibrium, but is suffering a recession as depicted in the graph below. The central bank of Carlsberg is introducing an expansionary monetary policy to get the economy back to the full-employment level of real GDP. Price index 160 140 120 100 80 80 7 2 AS AD LAS 60 370 380 390 400 410 420 Real GDP (in billions) a. What increase in aggregate demand is necessary to achieve this? EA $ billions. b. If successful, what will be the growth rate? Round your answer below to 2 decimal places. % c. If successful, what will be the inflation rate? Round your answer below to 2 decimal places. %
“If autonomous spending falls, the central bank shouldlower its inflation target in order to stabilize inflation.”Is this statement true, false, or uncertain? Explain youranswer
If the economy is in an inflationary gap, the Federal Reserve should conduct ______ monetary policy to ______ aggregate demand. A) contractionary; increase B) contractionary; decrease C) expansionary; decrease D) expansionary; increase
2) When would the Federal Reserve want to carry out a monetary policy to decrease aggregate demand?
B. Consider the following model where the monetary policy will be the only policy variable affecting demand for output. For expositional purposes the income velocity of money is held constant. With these assumptions the aggregate demand for output can be written in logs as: mt + v = Pt+ Yt The above equation is the equation of exchange in logs (equation that addresses the relationship between money and price level, and between money and nominal GDP. The equation tells us that total spending (M x V) is equal to total sales revenue (P x Y)). To complete the model we need to add the aggregate supply equation and a money supply rule. yt = y'+ a(pt - Et-1pt1) (2) mt = Byt-1+Et (3) Given that agents form expectations rationally, find a solution for (i) yt and (ii) pt. Is there any scope in this model for the policy authorities to influence the output through systematic stabilisation policy? Explain your answer.
multiple part question Create a graph of equilibrium in the IS-LM model. Show the effect of an expansionary monetary policy. Summarize your results. B. If the central bank’s goal is to maximize output, what interest rate will we expect in equilibrium? C. Starting from the equilibrium described in (B), suppose investors experience a decrease in “animal spirits.” What happens to output? Can the central bank offset this with expansionary monetary policy? D. What could fiscal authorities do to offset the shock to animal spirits described in (C)?
16. Keynes (1936) argued that, from a policy perspective, everything that can be achieved by a nominal wage cut can be more effectively achieved through an appropriate monetary policy. (a) Does this statement hold in the deﬁcient-demand Keynesian model for a negative shock to (i) aggregate demand and (ii) aggregate labor productivity? (b) Does this statement hold in the new Keynesian model for a negative shock to (i) aggregate demand and (ii) aggregate labor productivity?
Please be sure to explain why and how to the questions -Thank you
first image is just the resource. second image has the questions 6,7 and 8 * also note This economy’s central bank follows agiven Monetary Policy Rule: r = i = 0.025 × Y + 0.0003 × P , where P is the pricelevel.
Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that, due to increased instability in the financial markets, a decrease in investor and consumer confidence occurs. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose the Federal Reserve wants the economy to return to full-employment as quickly as possible. Should the Fed intervene? If so, show the impact of successful monetary policy on your graph. Label this new equilibrium point "3."
Why might Keynesians be pessimistic about the ability of monetary policy to stimulate output in situations such as the 1930s Depression in the United States or the recessions in Japon in the 1990s? What type of policy would Keynesian economists expect to be effective in such situations?Explain by diagrams.

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