Answer whether the following statements are true or false with a 3-4 line explanation for each: a) The Global Financial Crisis was driven primarily by supply shocks. b) Forward guidance is a policy that suffers from time inconsistency.
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Answer whether the following statements are true or false with a 3-4 line explanation for each:
a) The Global Financial Crisis was driven primarily by supply shocks.
b) Forward guidance is a policy that suffers from time inconsistency.
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- Suppose three economies are hit with the same negative supply shock. In country A, inflation initially rises and output falls; then inflation rises more and output increases. In country B, inflation initially rises and output falls; then both inflation and output fall. In country C, inflation initially rises and output falls; then inflation falls and output eventually increases. What type of stabilization approach did each country take? The answer choices for each country are: Stabilize inflation, stabilize output, or do nothingWhich of the following is a key difference between a rational expectations perspective and an adaptive expectations perspective? The adaptive expectations perspective believes individuals have access to limited data and change expectations gradually while the rational expectations perspective is that prices change quickly as new economic information becomes available. Rational expectations are based off of historical data while adaptive expectations use real time data. Government agencies tend to have rational expectations, due to their access to economic data, while the public at large tends to hold adaptive expectations A rational expectations perspective expects changes to happen very slowly, while adaptive expectations perspectives tend to expect fast change.What happened first was a major policy-induced supply shock. The lockdown forced firms in several directly affected sectors, from restaurants to hotels to airlines, to halt (or at least to drastically decrease) supply. In contrast to other supply shocks analyzed earlier in the book, many firms had no choice other than to stop or decrease production. As a result of sharply lower output, and thus lower income, and of increased uncertainty, this shock had a major effect on demand, not just in the sectors directly affected by the lockdown, but also in the non-affected sectors. Thus, the outcome was a combination of a supply shock and a sharp demand response. In that context, the role of macroeconomic policy was twofold. First: While it could not do much to increase output in the affected sectors, it needed to protect the firms in those sectors from going bankrupt and the workers who lost work from going hungry. Second: It needed to limit the effect of lower demand in the non-affected…
- Which of the following would properly be classified as an unfavorable supply shock? a)The interest rate decreases, spurring investment spending. b)The government introduces a set of market reforms that strengthens property rights and makes it easier and safer for buyers and sellers to write contracts. c)The world price of oil increases rapidly without warning and is expected to remain at the new high level for many years, making it more expensive for all firms to produce goods and services. d)There is a technological improvement that allows firms to reduce their costs of production permanently. e)There is an increase in government spending.6) Which of the following is a reason to support active stabilization policy? a) policy affects the economy with a lag. b) policy can offset shocks to the economy. c) policy takes time to have an impact on the economy. d) policy does not have an ability to affect unemployment. 7) An example of an automatic stabilizer is a) more people receive food stamps during a recession. b) fewer people collect unemployment benefits during an expansion. c) during a recession, people move down into lower tax brackets. d) all of the above are examples. 8) It is difficult to verify the Lucas Critique. Which of the following is a reason why? a) It is hard to identify shocks in the economy. b) It is hard to know how the economy would be different without implemented policies. c) both a) and b) are reasons. d) neither a) nor b) are reasons. 9) Which of the following is an example of the time inconsistency problem? a) monetary policy vows to fight inflation and dramatically increases the money supply. b)…Which of the following could be responsible for the movement from A to point B? (Refer to attached image) a decrease in taxes a rash of bearishness or stock market crash a downward revision of inflation expectations an upward revision of inflation prices
- An implication of the Rational Expectation Theory is that A) rational expectations of inflation are reformulated sooner than adaptive expectations of inflation. B) changes in how the inflation variable moves over time will not affect how expectations are formed. C) people can always accurately assess the actual rate of inflation. D) people always underestimate the future rate of inflation. E) people always overestimate the future rate of inflation.Macropoland is currently experiencing a recession--consumption and investment are very sluggish, and unemployment is quite high at 9%. Currently, inflation is very low at 0.4% (the historical average rate of inflation is about 2%). The Macropolish President has just hired you as her economic advisor. Your job is to prescribe policy that would enable the economy to recover from the recession. Explain how you could use the standard tools of expansionary monetary policy and expansionary fiscal policy to stimulate this economy towards economic growthConcept of Hysteresis suggests that the economic shocks affect the economy only for a short time period. True or false, justify your response in either case:
- Directions:Use the given scenarios and the information you have learned about Fiscal and Monetary policy to complete the questions that follow The economy of Andorra is currently experiencing unemployment rates of 5% while economic growth is stagnating at 2%. Naomi recently lost her job as a systems analyst and is struggling to find new employment in the current economic conditions. The Federal Reserve notices this change in the economy and decide to take steps to correct it. They can use their 4 tools in the following ways: a. What will the Federal Reserve do to open market operations? Blank 1 b. What will the Federal Reserve do to the reserve requirement? Blank 2 c. What will the Federal Reserve do to the discount rate? Blank 3 d. What will the Federal Reserve do to the interest on reserves? Blank 4 e. What impact will this have on loans from banks? Blank 5The Fed increased the target rate of the federal funds rate nine times since December 2015 through December 2018. An increase in the targeted rate implies a reduction in the growth rate of the money supply. Use the rational expectations AD-AS model to show and explain how this policy could affect Y, N, W/P, r, and P in the short and long runs. Use two scenarios: a) Firms accurately anticipate the change in P; b) They initially underestimate the change in P. What are the implications for monetary policy of the rational expectations model? Many critics said that the Fed's policy move would reduce economic growth. How can their arguments be countered? Note that the Fed has been very public about announcing its policy decisions since 1994.