Assume the assumptions of the IS-LM model hold. Early last year, the onset of COVID-19 damaged the production ability of the economy and significantly decreased consumption. Which of the following. would be the most likely action of the central bank under thes scenano? Oa The central bank decreases the money supply, which decreases the interest rate offsetting the effects on output from the decreased production and consumption Ob The central bank increases the money supply, which increases the interest rate. offsetting the effects on output from the decreased production and consumption O. The central bank increases the money supply, which decreases the interest rate offsetting the effects on output from the decreased production and consumption Od The central bank decreases the money supply. which increases the interest rate offsetting the effects on output from the decreased production and consumption

Assume the assumptions of the IS-LM model hold. Early last year, the onset of COVID-19 damaged the production ability of the economy and significantly decreased consumption. Which of the following. would be the most likely action of the central bank under thes scenano? Oa The central bank decreases the money supply, which decreases the interest rate offsetting the effects on output from the decreased production and consumption Ob The central bank increases the money supply, which increases the interest rate. offsetting the effects on output from the decreased production and consumption O. The central bank increases the money supply, which decreases the interest rate offsetting the effects on output from the decreased production and consumption Od The central bank decreases the money supply. which increases the interest rate offsetting the effects on output from the decreased production and consumption

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 8PA

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Consider the IS-LM model. The government wants to do fiscal policy either by raising government spending or lowering taxes. What will be the difference between these two approaches? O One will shift IS: the other will shift LM. One will raise consumption and the other will raise economic investment. O One will shift IS rightward; the other will shift IS leftward. O One is direct and the other is indirect. Question 8 Put the following tools of monetary policy in order, from earliest to latest, of when the Fed used them as their primary instrument. A. Open market operations B. Discount loans C. Interest paid on excess reserves O C. B.A OCAB OBAC OAB.C
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Please no written by hand solution tle shifts the Central Bank rule to the right. O a. An increase in the Z factors O b. A decrease in the price level O c. An increase in government spending O d. A decrease in government spending
"Crowding-out" occurs in the IS-LM model as rising government spending requires a in the interest rate in order to the demand for money at the new equilibrium, thus planned private investment. Select one: O a. fall, keep constant, raising O b. rise, lower, raising O c. rise, raise, lowering O d. rise, keep constant, lowering
a) Which of the follwing monetary policy actions can be used to close an inflationary gap?O No change in the money supply to keep interest rates constant.ODecrease the money supply to decrease interest rates,OIncrease the money supply to increase interest rates.O Increase the money supply to decrease interest rates.O Decrease the money supply to increase interest rates. b) Assume the economy is initially at full-employment equilibrium. Suppose the economy slows down and uncertainty increases, reducing consumption and investment expenditures, in the short run, this shock willcause the economy to fall below full enployment. To move the economy to a full-employment equilibrium, the Fed could:O. decrease government spendingO. increase corporate tax ratesO. lower the federal fund rate targetO. increase government spending O. raise interest rates
o 19. Which of these statements is true according to the Keynesian (post-Keynesian) view? a. Increases in monetary base cause an increase of money supply 20 b. Increase of money supply cause inflation c. Demands of firms for credit creates money supply d. Central banks can directly control money supply can couNOMIC OF prough anti- lated according to Keynes?
Please no written by hand solution Consider a scenario of a closed economy in the short run where price level is fixed. Assume that bothtaxes and money supply increase in a way that keep output constant in equilibrium (suppose that themarginal propensity to consume is less than one). Which of the following may result from the policychange?a) It will lead to an increase in investment but a decrease in consumption.b) It will result in an increase in investment but a decrease in government spending.c) It will lead to an increase in investment and private saving.d) It will decrease investment but increase in public saving.
Consider the model of supply and demand for central bank money. Assumethat there there are commercial banks. Suppose that people hold 20% of their moneyin currency and 80% of their money in deposits. The central bank sets the reserve-todeposit ratio at 10%. In the first period, the central bank increases the supply of moneyby $200, buying bonds through Open-Market Operations. Use this information to answerthe following questions:(a) For the second period (after the central bank has injected $200 in theeconomy), calculate: (i) the demand for currency, (ii) the amount of deposit held atthe commercial banks, (iii) the demand for reserves held at the central bank, and(iv) the demand for the high-powered money. How much is the additional moneysupply created at the end of the second period?2(b) How much is the additional money supply created at the end of the thirdperiod?(c) As time continues, additional money supply will be created. Calculatethe total increase in the money supply as a…
2. Suppose that the money market can be depicted in the graph below. Interest rate (M/P)² (M³/P)⁰ (M³/P)1 H A K O B C O E L3 L1 L2 Quantity of Money LI is the original demand for money by the public and (M/P) is the real money supply. Assume tha the price level does not change. The original equilibrium is at point O. Suppose that the government lowered income taxes so that consumers had more disposable income. Briefly describe how you reached that conclusion. Identify the new equilibrium point and what happens to interest rates
Explain why it is not possible for growing economies to have price stability whenthe money supply is constant
1) Inflation in Theoretica is currently below the target range of its central bank. What does this tell you regarding Theoretica’s likely output gap? Illustrate it using an AS-AD diagram, and briefly explain your diagram 2) Your mother states that lowering interest rates in the recessionary COVID-19 period is good policy because it will guarantee consumers will spend more as it is cheaper to borrow money. Do you agree or disagree with her statement? Provide two reasonings to justify your answer. 3) Is either helicopter money or quantitative easing preferred in times of severe recessions in order to boost economic activity? Explain your reasoning.
Which of the following statements is true for the scenario illustrated in the below diagram? LRAS Price Level (base year = 100) 120 110 100 90 80 400 SRAS E₁ 700 Eo AD AD₁ 500 600 Real Output (constant dollars) 800 O it illustrates a recessionary gap at Eo Oit illustrates expansionary monetary policy by shifting ADO to AD1 O it illustrates procyclical monetary policy O it can be caused by a tightening of the money supply, also known as contractionary monetary policy