Suppose that before the rise of online shopping the inflation rate was 2% andassume this was the rate targeted (i.e. preferred) by the Fed. Now consider therate of inflation in the new equilibrium depicted as point B in your diagram.Assume also that the Fed is just concerned with returning the inflation rate backto 2% whenever it deviates from this target. Given this information, is the Fedhappy with the equilibrium at point B? If not, what will be the reaction of the Fed?Pick the best answer from the choices below. Also draw the new equilibrium inthe diagram and label it Point C.The Fed will raise the interest rate to lower inflation.O The Fed will adopt fiscal stimulus to stimulate investment and short-run output.The Fed will lower the interest rate to shift the Phillips curve down.The Fed will lower the interest rate to shift the Phillips curve up.O The Fed will lower the interest rate to create inflation. Problem 2: the Short-run ModelOn a new sheet of paper show the work for each question.Consider the IS-MP-PC Model. Draw a two-part diagram. At the top draw the IS-MP curves where the initialequilibrium is such that the real interest rate equals the MPK and short-run output (SRO) is at its long-runvalue. Label as Point A. In the bottom diagram draw the Phillips curve. Label as Point A the point depictingthe change in the inflation rate that results when output is at its long-run value in the absence of inflationshocks.Suppose that the widespread switch to online shopping lowers the profit margins of businesses andimpacts their price-setting strategies. Make a prediction about the short-run economic effects of thisinflation shock using the IS-MP-PC model. Add the new equilibrium to your diagram and label it Point B.Consider the following statements. Choose the correct answer to each question.

The Federal Reserve System (or the Fed) is the national bank and money related power of the United…

Assume also that the Fed is just concerned with returning the inflation rate to 2% whenever it deviates from this target. Given this information, is the Fe happy with the equilibrium at point B? If not, what will be the reaction of the Pick the best answer from the choices below. Also draw the new equilibriun the diagram and label it Point C. O The Fed will raise the interest rate to lower inflation. O The Fed will adopt fiscal stimulus to stimulate investment and short-run output. O The Fed will lower the interest rate to shift the Phillips curve down. The Fed will lower the interest rate to shift the Phillips curve up. O The Fed will lower the interest rate to create inflation.

Assume also that the Fed is just concerned with returning the inflation rate to 2% whenever it deviates from this target. Given this information, is the Fe happy with the equilibrium at point B? If not, what will be the reaction of the Pick the best answer from the choices below. Also draw the new equilibriun the diagram and label it Point C. O The Fed will raise the interest rate to lower inflation. O The Fed will adopt fiscal stimulus to stimulate investment and short-run output. O The Fed will lower the interest rate to shift the Phillips curve down. The Fed will lower the interest rate to shift the Phillips curve up. O The Fed will lower the interest rate to create inflation.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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With the inflation rate on the vertical axis and output on the horizontal axis, the long run aggregate supply curve O a. Is horizontal because of money illusion O b. Is upward-sloping because a higher inflation rate implies higher profits for the firms O c Is upward-sloping because of money illusion O d. Is vertical because Yp is independent of the inflation rate
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Suppose the Fed acts to increase the non-borrowed monetary base. In the liquidity preference framework, everything else held constant, this action will cause in the equilibrium interest rate. in the money and Select one: OA. a decrease; demand for; a decrease B. an increase; supply of; a decrease OC. a decrease; supply of; an increase OD. an increase; demand for; an increase
Suppose there is a simultaneous fiscal expansion and monetary contraction. We know with certainty that: Select one: O O O O O a. output will increase. b. output will decrease. c. the interest rate will increase. d. the interest rate will decrease. e. both output and the interest rate will increase.
a. Suppose that the central bank wants to set policy rate (or real rate) at 4%. If expected inflation is 3%, this means that they must set the nominal interest rate to b. Now suppose that the zero lower bound has been reached and expected inflation is 3%. In this situation, the central bank cannot lower the real rate below: a) 7%; -3% b) 7%; 3% c) 4%; d) 1%; 1% 4%
The governor of the RBNZ announces that the economy is doing better than expected. He announces that he will order a monetary contraction. This policy will: O a. Shift the IS curve downwards O b. Shift the LM curve downwards O C. Shift the IS curve upwards d. Shift the LM curve upwards
Using the simple monetary rule Rt-r=m(T-), if m=0.5 and the inflation rate is 2 percent below the target inflation rate, the Federal Reserve will A. raise the marginal product of capital by 1 percent. B. lower the interest rate by 1 percent. O C. raise the interest rate by 1 percent. OD. lower the marginal product of capital by 1 percent. O E. lower the target rate by 2 percent.