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

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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 6 If the economy were represented by the following graph, what is the appropriate monetary policy? Price Level LRAS SRAS El P1 AD Real GDP Y1 Yp buy government bonds from commercial banks, thereby lowering interest rates and increasing aggregate demand. Ob sell government bonds to commercial banks, thereby lowering interest rates and increasing aggregate demand buy government bonds from commercial banks, thereby increasing interest rates and decreasing aggregate demand O d) sell government bonds to commerical banks, thereby increasing interest rates and decreasing aggregate demand.
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.
Q3. How the increase in money supply leads to increase in inflation? Explain your answer with the help of economic theory, and suggest some policies how can we control inflation.
1. Inflation can cause increased wealth inequality through the Cantillion Effect. Essentially, this means that expansionary monetary policy benefits those who are initially given new money (usually those who are rich and well-connected), while the rest of the population suffers the effects of inflation. Using the quantity theory of money, explain why this is the case.case. 2. Assume that the economy has an annual inflation rate of 5 percent. Are the following investments profitable in real terms? You do not need to explain your answert. (a) The spot price of silver is $31 per ounce. You purchase 50 ounces of silver for $1,600, in order to compensate the merchant. Over the year, the spot price of silver rises to $34 per ounce, and you are able to sell the silver you have at the spot price. (b) You purchase a Non-Fungible Token (NFT) for $98 million. The following year, you are able to sell it for $102.5 million 3. Why does the 'inflation tax' transfer resources from working people to…
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.
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