←2:12Principles of Macroe...VoLTE4G+Rvecmeccssary: what would have happened to aggregate demand and aggregate output:6 Consider two economies - Avalon and Eternia. In Avalon, the central bank uses interestrates to conduct monetary policy. In Eternia, the central bank conducts monetary policy bychanging the money supply.a Which economy would have a more effective monetary policy? Explain.b Which country would have higher inflation? Explain.33%c Why can't Avalon and Eternia set both interest rates and money supply?7 This chapter explains that expansionary monetary policy reduces the interest rate and thusstimulates demand for consumption and investment goods. Explain how such a policy alsostimulates imports, exports and overall net exports. (You may need to refer to chapter 13to answer this question.)8 Suppose economists observe that an increase in government spending of $10 billion raisesthe total demand for goods and services by $30 billion.a Is crowding out occurring in this case? Explain.bIf these economists ignore the possibility of crowding out, what would they estimate themarginal propensity to consume (MPC) to be?cNow suppose the economists allow for crowding out. Would their new estimate of theMPC be larger or smaller than their initial one?a a decrease in government spendingb an increase in the Australian corporate tax rateC an increase in interest rates9 Suppose the government reduces taxes by $30 billion, that there is no crowding out andthat the marginal propensity to consume is 3.a What is the initial effect of the tax reduction on aggregate demand?b What additional effects follow this initial effect? What is the total effect of the tax cut onaggregate demand?cHow does the total effect of this $30 million tax cut compare with the total effect of a$30 million increase in government purchases? Why?10 Suppose consumers suddenly become more optimistic about their future incomes anddecide to purchase $40 million more of additional goods and services. Will this change havea 'multiplier' effect on total output? Explain.11 The Australian government is concerned about the growing budget deficit, so they decideto cut government expenditures by $15 billion. They also decide the economy needs aboost so they decide to cut income taxes by $40 billion. Would this simply mean a netincrease in aggregate demand of $25 billion? Why or why not?12 Suppose government spending declines and the RBA simultaneously decreases interestrates. What is the net effect on aggregate demand? What factors in the economy does youranswer depend upon?13 Assume the economy is in an expansionary phase. Explain how each of the followingpolicies would affect consumption and investment. In each case, indicate any direct effects,any effects resulting from changes in total output, any effects resulting from changes inthe interest rate and the overall effect. If there are conflicting effects making the answerambiguous, say so.fierfluctuation Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202401/492For various reasons, fiscal policy changes automatically when output and employmentluctuate.a Explain why tax revenue changes when the economy booms.o Explain why government spending changes when the economy has high levels ofinflation.If the government were to operate under a strict balanced-budget rule, what would ithave to do in a booming economy? Would that make the boom more or less extrein response to a decrease in terest rates, would the following things be smaller, larno different in the long run than in the short run?%a consumer expenditureso the inflation rate: the interest rated aggregate outputSuppose that the RBA decides to increase the interest rate.What will happen to the ney supply? Illustratur answer with an opriatediagram.What is the effect of this policy on the interest rate in the long run? How do you know?

***Since the student has posted multiple questions, the expert is required to solve only the first…

Consider two economies - Avalon and Eternia. In Avalon, the central bank uses interest rates to conduct monetary policy. In Eternia, the central bank conducts monetary policy by changing the money supply. a Which economy would have a more effective monetary policy? Explain. Which country would have higher inflation? Explain. b Why can't Avalon and Eternia set both interest rates and money supply? c

Consider two economies - Avalon and Eternia. In Avalon, the central bank uses interest rates to conduct monetary policy. In Eternia, the central bank conducts monetary policy by changing the money supply. a Which economy would have a more effective monetary policy? Explain. Which country would have higher inflation? Explain. b Why can't Avalon and Eternia set both interest rates and money supply? c

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Other things the same, continued increases in the money supply lead to a. continued increases in the price level and real GDP. b. continued increases in real GDP but not continued increases in the price level. c. continued increases in the price level but not continued increases in real GDP. d. a one-time permanent increase in both prices and real GDP.
What happens when a central bank pursues inflation targeting? A. The policy actions that central banks use to achieve the inflation target are kept secret. B. With inflation targeting, the United States would be more successful at achieving low and stable inflation. C. Many central banks achieve their inflation target at the expense of extremely high unemployment. D. The bank announces an explicit inflation target and the public is confident the bank's policy will achieve that target. thank you!!
Which of these methods to control inflation is related to monetary policy? a. setting price ceilings to key commodities b. reducing the money supply in the economy c. charging pollution fees on industries d. increasing tax rates and imposing new taxes
policy is when a central bank acts to increase the money supply in an effort to stimulate the economy. Select one: a.Deflationary monetary b.Expansionary monetary c.Contractionary fiscal d.Cyclical monetary e.Countercyclical fiscal
3. The channels through which monetary policy affects economic activity are called? A. Transmission mechanisms of monetary policy. B. Flow mechanisms of monetary policy. C. Distribution mechanisms of monetary policy. D. Allocation mechanisms of monetary policy.
A movement to the right along a given short-run Phillips curve could be caused by a. contractionary monetary policy, but not an increase in the natural rate of unemployment. b. expansionary monetary policy, but not an increase in the natural rate of unemployment. c. an increase in the natural rate of unemployment or a contractionary monetary policy. d. an increase in the natural rate of unemployment or expansionary monetary policy.
What are the two goals of monetary policy? Oa. Maximum employment and low and stable inflation Ob. Maximum employment and high and stable inflation Oc. Minimum employment and stable inflation Od. Controlled government spending and low taxes
Money neutrality is the idea that a. any policy can have intended and unintended consequences b. in the long-run, markets will clear and return the economy to equilibrium regardless of what happens to the money supply. c. there are two types of variables, nominal and real, and only nominal variables are affected by the money supply. d. nominal and real interest rates are unrelated. During the middle of the 20th century, income inequality in developed economies generally fell. The reason for this was a. average incomes didn't rise but welfare systems redistributed income. b. that returns to assets held by high income earners fell steadily. c. incomes overall rose but taxation systems were slowly made more and more progressive. d. a rise in average income with incomes of the bottom deciles rising faster than the top.
What is the ideal balance between monetary and fiscal policy for a nation like Japan, where prices are rising yet unemployment is under control? a. Decrease taxes, increase government spending and increase money supply b. Decrease taxes, decrease government spending and decrease money supplyc. None of these choice is correctd. Increase taxes, decrease government spending and decrease money supply
1).True or False: If the Fed undertakes expansionary monetary policy, it can retum the economy to its original inflation rate and original unemployment rate. 2).True or False: If the Fed undertakes expansionary monetary policy, it can return the economy to its original inflation rate and original unemployment rate. True False
What happens when a central bank pursues inflation targeting? A. The policy actions that central banks use to achieve the inflation target are kept secret. B. With inflation targeting, the United States would be more successful at achieving low and stable inflation. C. Many central banks achieve their inflation target at the expense of extremely high unemployment. D. The bank announces an explicit inflation target and the public is confident the bank's policy will achieve that target.