3. The long-run effects of monetary policyThe following graphs plot the long-run equilibrium situation for an economy. The first graph plots the aggregate demand (AD) and long-run aggregatesupply (URAS) curves. The second graph plots the long-run and short-run Phillips curves (LRPC and SRPC, respectively).(?)PRICE LEVELINFLATION RATE0234OUTPUT (Trofdara)9UNEMPLOYMENT HATE (P)ADSHPCAD-The long-run effect of the central bank's policy isin real GDPLHASSHPCLAPC(?)Which of the following statements are true based on these graphs? Check all that apply.The natural level of output is $6 trillion.The current quantity of output is greater than potential output.The unemployment rate is currently 9% higher than the natural rate of unemployment.Suppose the central bank of the economy pursues a policy that increases the money supply.Show the long-run effects of this policy on both of the graphs by shifting the appropriate curves.in the inflation rate,in the unemployment rate, and

This can be described as the rate of rise in prices over a provided period of time. This is…

3. The long-run effects of monetary policy The following graph plot the long-run equilibrium situation for an economy. The first graph plots the aggregate demand (AD) and supply (LAS) curves. The second graph plots the long-run and short-run Phillips curves (LRPC and SRPC, respectively). 1RA2125 AD aggregate

3. The long-run effects of monetary policy The following graph plot the long-run equilibrium situation for an economy. The first graph plots the aggregate demand (AD) and supply (LAS) curves. The second graph plots the long-run and short-run Phillips curves (LRPC and SRPC, respectively). 1RA2125 AD aggregate

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: Discuss how the Bank of England can control the money supply and interest rates and then reflect on…

A: The Bank of England has the capacity to control the money supply of money in the economy by either…

Q: he goal of stable prices is achieved when _______. A. the prices of food, clothing, and…

A: The main objectives of the Fed are to achieve price stability and maximum employment. Price…

Q: a) According to the quantity theory of money, changes in money supply have different effects on real…

A: The quantity theory equation: M × V = P × Y M = money supply or money growth rate. V = Velocity P =…

Q: Explain the linkages in the causal chain when the Fed conducts a contractionary monetary policy.…

A: *Fed conducting contractionary monetary policy: 1.(3) tools used by fed for contractionary monetary…

Q: The following graph illustrates a shift of the aggregate demand curve to the left. It can be caused…

A: Begin by observing the initial conditions of the given economy. The short-run output at E0…

Q: Nominal GDP in this economy is S trillion. If the velocity of money is 3, the money supply in this…

A: Relationship between Nominal GDP and Real GDPNominal GDP = Real GDP * Price levelAccording to the…

Q: Fill in the blanks in the following statements to explain when (business cycle) the Fed will use…

A: The variations of gross domestic product (GDP) around its long-term growth pattern are known as the…

Q: VPC Inflation PC = 9 MR PC = 8 8. t' .y PC = 7 7 W PC = 6 6. Output Figure 9 The MR and PC curves…

A: Phillips curve shows the inverse relationship between inflation and unemployment but positive…

Q: The following graph shows the current short-run Phillips curve for a hypothetical economy; the point…

A: Expansionary monetary policy refers to the Federal Reserve’s policy of increasing money supply to…

Q: 4. Monetary policy and the Phillips curve The following graph shows the current short-run Phillips…

A: It can be defined as a form of graphical of the concept of economics which shows the rate of…

Q: Using equation of exchange explain what should central banks do to avoid long run inflation?

A: According to the quantity theory of money, the equation of exchange can be given as follows-

Q: INFLATION RATE 2 4 6 8 UNEMPLOYMENT RATE (Percent) SRPC 10 The long-run effect of the central bank's…

A: Aggregate Demand (AD): Aggregate interest is the amount of labor and products that families, firms,…

Q: do fast .i will 5 upvotes.

A: This matches the movement shown on the graph from the starting point of 5% unemployment and 5%…

Q: 3) Contractionary monetary policy can be used by the central bank with the objective of reducing…

Q: Monetary Policy: End of Chapter Problem We discussed how hard it is to keep AD stable or put it back…

A: Given information AD: 1%=Inflation +Real growth rate AS: Inflation=Expected inflation +(Real growth…

Q: 19.1 The Price Stability Goal and The Nominal Anchor 1) The most common definition that monetary…

A: “Since you have posted multiple questions, we will provide the solution only to the first question…

Q: What trade offs does the Fed face, particularly in the short run in attempting to reach its goals?…

A: Monetary policy refers to the set of policies a central bank of a country uses during the time of…

Q: on the following graph, shift the curve or drag the blue point along the curve, or do both, to show…

A: It can be defined as a form of graphical of the concept of economics which shows the rate of…

Q: In the short run, an unexpected decrease in the money supply results in unemployment rate. in the…

A: The Phillips curve graphically illustrates the economic relationship between the rate of…

Q: In the short run, an unexpected increase in the money supply results in unemployment rate. INFLATION…

A: Phillips curve visualizes the relationship between the unemployment rate and the inflation rate. It…

Q: In year one, the money supply (M) is equal to 500, the velocity of money (V) is 8, and the price…

A: Nominal GDP measures one country’s production of goods & services valued at the current price.…

Q: Year 2018 2019 Potential Real GDP $18.0 trillion 18.5 trillion real GDP and potential GDP Real GDP…

A: Potential real GDP, also known as potential output or full-employment GDP, refers to the level of…

Q: 3. An economy has full-employment output of 1000. The other aggregates are as follows Cd == Id =…

A: The output that is produced by the utilization of resources such as employment upto its maximum…

Q: Suppose inflation is still high be mid-2022 and the Fed chair announces his/her policy. Suppose his…

A: There is a trade-off between inflation and unemployment. Every central bank requires to strike a…

Question

3. The long-run effects of monetary policy
The following graphs plot the long-run equilibrium situation for an economy. The first graph plots the aggregate demand (AD) and long-run aggregate
supply (URAS) curves. The second graph plots the long-run and short-run Phillips curves (LRPC and SRPC, respectively).
(?)
PRICE LEVEL
INFLATION RATE
0
2
3
4
OUTPUT (Trofdara)
9
UNEMPLOYMENT HATE (P)
AD
SHPC
AD
-
The long-run effect of the central bank's policy is
in real GDP
LHAS
SHPC
LAPC
(?)
Which of the following statements are true based on these graphs? Check all that apply.
The natural level of output is $6 trillion.
The current quantity of output is greater than potential output.
The unemployment rate is currently 9% higher than the natural rate of unemployment.
Suppose the central bank of the economy pursues a policy that increases the money supply.
Show the long-run effects of this policy on both of the graphs by shifting the appropriate curves.
in the inflation rate,
in the unemployment rate, and

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Define inflation

VIEW

Step 2: Determine the correct option

VIEW

Step 3: Explain why other options are incorrect

VIEW

Step 4: Fill the blank

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 5 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

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
The Fed's mandated goals are "maximum employment, stable prices, and moderate long-term interest rates." Explain the harmony among these goals in the long run. In the long run, ________. A. increases in monetary aggregates create a positive output gap and price stability, maximum employment, and close-to-zero nominal interest rates B. low nominal interest rates bring maximum employment, stable prices, and eliminate structural unemployment C. price stability brings maximum sustainable potential GDP growth, maximum employment, and a nominal interest rate close to the real interest rate D. price stability brings maximum sustainable potential GDP growth, unemployment below the natural rate, and nominal interest rates that rise slowly
Question 3 3.1 Suppose the economy of Panicia is initially at a long-run equilibrium. The Central Bank then increases the money supply growth rate. Assuming that any resulting inflation is expected, describe any likely changes in output and inflation that are caused by the increase in the money supply growth rate. Explain your conclusions using the aggregate demand-aggregate supply (AD-AS) diagram. 3.2 The Central Bank of Lala-land decides to increase the target inflation rate from 2 to 3 percent. Using the dynamic AD-AS model, show the effect of the change in the inflation rate by drawing a graph. When you draw your graph, assume that the economy is initially in the long run equilibrium. Please provide a brief explanation of your graph. (Hint: Use the Reserve Bank's policy reaction function (Taylor rule) and the AD-AS model)
Inflation rate Phillips curve, Phillips curveo Unemployment rate In the given graph of the Phillips curve, which of the following would have caused the Phillips curve to shift as shown? Conducting contractionary monetary policy when the economy is at its short-run equilibrium. Conducting expansionary monetary policy when the economy is at its short-run equilibrium. Conducting contractionary monetary policy when the economy is at its long-run equilibrium. 1 Conducting expansionary monetary policy when the economy is at its long-run equilibrium.
Question 7. Suppose there is an exogenous increase in the price of oil in an economy. a. Use the aggregate demand and supply model to illustrate and examine the impact of the oil-price increase on output, employment and the price level in both the short run and the long run. b. If the Bank of Canada cares about keeping output and employment at their natural-rate levels, what is the policy response of the Bank of Canada? What is the impact of policy response on the price level? Use the aggregate demand and supply model to explain your answer. Please illustrate the answers using figures with aggregate demand and supply curves. Please also briefly explain the answers in words.
What are the three instruments of monetary control? Explain. Why does the Federal Reserve prefer to use open market operations? Explain. How can the Federal Reserve use its open market operations to expand or contract the nation’s money and credit supply? Explain in some detail. Describe the workings of the Federal Open market Committee which controls monetary policy. Give a detailed account of how monetary policy works to change interest rates, aggregate demand, and the macroeconomy.
1. Based on the most recent announcement made by the RBA Governor (see the RBA Statement on the Monetary Policy Decision for May 2023 below), identify what type of monetary policy did the RBA implement in this announcement? Which part of the AD-AS model is this policy aiming to shift and in what direction? What does the RBA’s monetary policy decision tell us about which phase of the business cycle we are currently in, and which economic indicator the RBA is most concerned about? (3-4 sentences) 2. In its announcement, the RBA Governor refers to “the importance of returning inflation to target.” As part of your Policy Brief, explain what is meant by the inflation target and how does an inflation target contribute to good economic management? Based on the news updates that we discussed in our lectures and tutorials throughout this course, what are some factors that are currently contributing to inflationary pressures in Australia and globally, and which part of the AD-AS model are…
Using the Quantity Theory of Money, derive an expression for the rate of inflation for the case when the velocity of money is not a constant and use it to explain the pre-1990 and post-1990 curves on slide 32 of lecture 16.
28. The Monetary Policy Rule and the Velocity of Money The quantity equation shows that the product of the money supply (M) and the velocity of money (V) is equal to the product of the price level (P) and real GDP (Y): M × V = P × Y. Monetarists argued that the central bank should follow a monetary policy rule to ensure that the money supply (M) grows at a certain rate over time. They argued that the inflation rate was slow to change and predictable, so constant growth of the money supply would translate into steady growth of nominal GDP (P x Y). To see why this could be the case, consider the fact that any time the left-hand side of the quantity equation, M × V, changes by a certain percentage, the right-hand side, P x Y, must change by the same percentage: Percentage Change in (M x V) Percentage Change in (P x Y) You can use a general rule about percentage changes to analyze changes in the variables of the quantity equation even further. The percentage change in the product of two…
8. Monetary policy and the Phillips curve The following graph plots the short-run Phillips curve for a hypothetical economy. The given point on the graph indicates the initial rates of unemployment and inflation. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to decrease the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. INFLATION RATE (Percent) 5 2 INFLATION RATE (Percent) 1 0 6 5 0 1 0 3 In the short run, an unexpected decrease in the money supply results in unemployment rate. 0 9 6 12 UNEMPLOYMENT RATE (Percent) 3 SR Phillips Curve On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the long-run effects of the decrease in the money supply. O 6 UNEMPLOYMENT RATE (Percent) 9 15 12 18 15 In…
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
3. "Inflation is much too high and we understand the hardship it is causing. We're moving expeditiously to bring it back down," Fed Chairman Jerome Powell said during a news conference. (Source: CNBC.com) Given the above statement, suggest a policy which can be implemented by the Fed to address the inflationary pressure. Assume that the Fed were to adopt required reserve ratio, using AD-AS model, explain the outcomes of this move on the economy in the short run. (You may exclude LRAS curve in your model)