4. The hypothetical information in the following table shows what the values for real GDP and the price level will be in 2017 if the Fed does not use monetary policy. Year Potential GDP Real GDP Price level 2016 $17.7 trillion $17.7 trillion 114 2017 18.1 trillion 17.9 trillion 116 If the Fed wants to keep real GDP at its potential level in 2017, should it use an expansionary policy or a contractionary policy? Briefly explain your answer. b. Suppose the Fed's policy is successful in keeping real GDP at its potential level in 2017. State whether each of the following will be higher of lower than if the Fed had taken no action. а. I. Potential GDP The inflation rate The Unemployment rate Real GDP II. III. IV. c. Draw an AD and AS graph to illustrate your answer. Be sure your graph contains LRAS , SRAS, and AD curves for 2016 and 2017, with and without monetary policy action.

4. The hypothetical information in the following table shows what the values for real GDP and the price level will be in 2017 if the Fed does not use monetary policy. Year Potential GDP Real GDP Price level 2016 $17.7 trillion $17.7 trillion 114 2017 18.1 trillion 17.9 trillion 116 If the Fed wants to keep real GDP at its potential level in 2017, should it use an expansionary policy or a contractionary policy? Briefly explain your answer. b. Suppose the Fed's policy is successful in keeping real GDP at its potential level in 2017. State whether each of the following will be higher of lower than if the Fed had taken no action. а. I. Potential GDP The inflation rate The Unemployment rate Real GDP II. III. IV. c. Draw an AD and AS graph to illustrate your answer. Be sure your graph contains LRAS , SRAS, and AD curves for 2016 and 2017, with and without monetary policy action.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Read “YOU’RE THE ECONOMIST: Did the Fed Cause the Great Recession?” in Chapter 26. In support of the Fed’s monetary policy prior to the deflation of the home prices bubble, one can argue that the reality is that increasing the money supply and low-interest rates were required to sustain expansion. Based on the Monetarist’s school of thought, criticize the Fed’s policy
3. If the FED can only directly control nominal interest rates, how does the FED influence real interest rates that determine the actual stance of monetary policy?
According to Keynes, increasing the money supply should lower interest rates in the economy. Milton Friedman notes that while it is true that expansionary monetary policy can lower interest rates, it is only part of the story. a. Briefly explain under what conditions an expansionary monetary policy will indeed lower interest rates, both in the short and long run. A graph may help answering this question.b. Briefly explain under what conditions an expansionary monetary policy will increase interest rates. A graph may help answering this question.
What was the actual federal funds rate set by the Fed in 2021? Was monetary policy expansionary or contractionary? Briefly explain.
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)
Year 2022 2023 Potential Real GDP $18.1 trillion 18.4 trillion Real GDP $18.1 trillion 18.6 trillion Price Level 150 155 Refer to Table 15-6. Suppose the table above illustrates the values of real and potential GDP and the price level if the Fed does not vote to change their current policy to be more contractionary or expansionary. If the Fed wants to keep real GDP at its potential level in 2023, should the Fed use a contractionary or expansionary policy? Should it raise or lower its interest rate target? How should it conduct open market operations to achieve its goal?
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Helicopter Money Primer: The possible next frontier in quantitative easing Central banks-the Fed, the Bank of Japan, the European Central bank, the People's Bank of China, and others-have bought trillions of dollars of bonds. The Fed alone has bought $4 trillion-worth. What are the Fed's policy tools and which policy tool did the Fed use to increase its assets to $4 trillion? Source: Da The Fed's policy tools include O A. the required reserve ratio, discount rate, and government expenditure B. extraordinary crisis measures, marginal tax rates, and the discount rate OC. open market operations, marginal tax rates, and government expenditure OD. the required reserve ratio, discount rate, and open market operations To increase its assets to $4 trillion, the Fed used O A. the discount rate O B. required reserve ratios O C. a printing press to print more currency O D. large-scale open market operations called quantitative easing Click to select your answer. MacBook A DII 20 D00 000 F12 F10…
3 E 1.7 The hypothetical information in the table below shows what the values for real GDP and the price level would have been in 2019 if the Federal Reserve did not use monetary policy: Real GDP F3 Year 2018 2019 Cxpansionary Di bills or sold them? $ d wanted to keep real GDP at it R a. Real GDP b. Full-employment real GDP c. The inflation rate d. The unemployment rate F4 b) Suppose the Fed's policy was successful in keeping real GDP at its potential level in 2019. State whether each of the following would be higher or lower than if the Fed had taken no action: Potential Real GDP $18.5 trillion 19.0 trillion I c) Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2018 and 2019; SRAS curves 2018 and 2019; AD curve for 2018 and 2019, with and without monetary policy actions; and equilibrium real GDP and the price level in 2019 with and without policy. % 5 T F5 O Search A 6 $18.5 trillion 19.4 trillion F6 Y F7 &…
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