Below is an aggregate demand and supply diagram.Suppose the economy starts at point C. If the Fed decides to increase the money supply, the economy will movefrom C toto A in the long run.Oto B in the long run.Oback to C in the long run.to D in the long run.

An aggregate demand and supply diagram, with the economy starting at point C, is suggested by the…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose inflation is still high be mid-2022 and the Fed chair announces his/her policy. Suppose his or her approach to monetary policy can be summarized by the following statement: “I care only about inflation. Unemployment is at very low levels for quite some time” b) What would be the effect on the aggregate demand curve?
OMOs are the buying and selling of Gov’t bonds. Explain the relationship between the Gov’t bonds and the FED in relation to this macro tool.
Draw and label both graphs and show the economy in a recession. Use the money market graph to show how the FED closes the recessionary gap using monetary policy AD and AS Money Market Use arrows to explain the process:
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.
If the graph represents current conditions in the economy, the Fed is likely to conduct: A B C D expansionary monetary policy in response to the recessionary gap. expansionary monetary policy in response to the inflationary gap. contractionary monetary policy in response to the recessionary gap. contractionary monetary policy in response to the inflationary gap. Price Level (P) PE A LRASI SRAS AD QE QN Real GDP (Q)
Suppose the Federal Reserve decreases the money stock by 12%. Create a Classical View AD-AS graph to show the long-run effect of the Fed's monetary contraction on the US economy.
If Congress raises taxes and the Fed reduces money supply, then in the short run, the two policies would lead to:a. lower income but we don’t know if interest rate will rise or not.b. higher income but we don’t know if interest rate will rise or not.c. a lower interest rate but we don’t know if income will rise or not.d. a higher interest rate but we don’t know if income will rise or not
Suppose the Fed wants to set the real interest rate 1 percentage point lower than the inflation rate. Nominal interest rates cannot fall below zero. a. Graph the MP curve for inflation values between -2% and 2%. b. Graph the AD curve. Label the inflation rate at which it kinks.
The U.S. economy is at full employment when the Fed increases the quantity of money, and all other things remain the same. Explain the effect of the Fed's action on aggregate demand in the short run. An increase in the quantity of money. A. increases aggregate demand B. decreases aggregate demand C. decreases the quantity of real GDP demanded but aggregate demand does not change D. increases the quantity of real GDP demanded but aggregate demand does not change
Aggregate demand increases if :Select one a. the Fed increases the required reserve .ratio .b. the government decreases taxes .c. the government decreases spending .d. the Fed sells government bonds
The economy of Carlsberg is presently in equilibrium, but is suffering a recession as depicted in the graph below. The central bank of Carlsberg is introducing an expansionary monetary policy to get the economy back to the full-employment level of real GDP. Price index 160 140 120 100 80 80 7 2 AS AD LAS 60 370 380 390 400 410 420 Real GDP (in billions) a. What increase in aggregate demand is necessary to achieve this? EA $ billions. b. If successful, what will be the growth rate? Round your answer below to 2 decimal places. % c. If successful, what will be the inflation rate? Round your answer below to 2 decimal places. %

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Below is an aggregate demand and supply diagram. Suppose the economy starts at point C. If the Fed decides to increase the money supply, the economy will move from C to to A in the long run. Oto B in the long run. Oback to C in the long run. to D in the long run.