Chair of the Federal Reserve Suppose you are appointed Chair of the Federal Reserve, and suppose that the Federal Open Market Committee is abolished, thus giving you complete control over monetary policy. With the goal of stabilizing output, explain how and why you would change the real interest rate in response to each of the following shocks. Show the effects on the economy in the short run using the IS-MP diagram. A. B. C. A large earthquake destroys many houses and buildings on the West Coast, but fortunately results in little loss of life. A housing bubble bursts, so that housing prices fall by 20 percent and new home sales drop sharply. Explain why your job as Chair of the Federal Reserve would, in reality, not be as easy as the IS-MP diagrams above suggest.

Chair of the Federal Reserve Suppose you are appointed Chair of the Federal Reserve, and suppose that the Federal Open Market Committee is abolished, thus giving you complete control over monetary policy. With the goal of stabilizing output, explain how and why you would change the real interest rate in response to each of the following shocks. Show the effects on the economy in the short run using the IS-MP diagram. A. B. C. A large earthquake destroys many houses and buildings on the West Coast, but fortunately results in little loss of life. A housing bubble bursts, so that housing prices fall by 20 percent and new home sales drop sharply. Explain why your job as Chair of the Federal Reserve would, in reality, not be as easy as the IS-MP diagrams above suggest.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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