e. Show the impact of the fiscal policy action on a correctly labeled money market graph (remember that thegovernment will need to use money to make more transactions).i.ii.Label the original nominal interest rate i₁ and the new nominal interest rate i2.4DESCRIBE the change.f. Suppose (in a limited reserves framework) the Federal Reserve decides to implement monetary policy tocounteract inflation that occurred following the spending increase.i.What open market operation would they need to implement?ii.iii.How would the policy action impact the money supply?.What change in the discount rate would they use if they wanted it to be consistent with the open marketoperation?g. Assuming a limited reserves framework, graph the impact of the monetary policy action on the money marketgraph in part e.i.ii.Label the new interest rate i3. EDESCRIBE the combined impact of parts e and g (the fiscal and monetary policy) on nominal interest rates.

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Answered: e. Show the impact of the fiscal policy…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Analyse the impact of these events on the price level and total output of an economy in the short term. If policymakers were to use monetary policy to actively stabilize the economy, in which direction should they move the money supply and interest rate and show the effects of these policies? Please discuss your answers with appropriate graphs. - (a) The government raises taxes and reduces expenditures to balance its budget. (b) Enterprises in the economy are pessimistic about the economy in the future. - (c) Foreigners increase their taste for domestically produced beef. (d) The money wage rate rises.
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A. Discuss, with the help of diagrams, Friedman’s argument concerning the short and long-run effects of an increase in the money supply. B. Now discuss how his argument can be extended to study short and long-run effects of changes in the growth rate of a growing money supply. Both parts please.
3. "Inflation is much too high and we understand the hardship it is causing. We're moving expeditiously to bring it back down," Fed Chairman Jerome Powell said during a news conference. (Source: CNBC.com) Given the above statement, suggest a policy which can be implemented by the Fed to address the inflationary pressure. Assume that the Fed were to adopt required reserve ratio, using AD-AS model, explain the outcomes of this move on the economy in the short run. (You may exclude LRAS curve in your model)
16. Keynes (1936) argued that, from a policy perspective, everything that can be achieved by a nominal wage cut can be more effectively achieved through an appropriate monetary policy. (a) Does this statement hold in the deﬁcient-demand Keynesian model for a negative shock to (i) aggregate demand and (ii) aggregate labor productivity? (b) Does this statement hold in the new Keynesian model for a negative shock to (i) aggregate demand and (ii) aggregate labor productivity?
1. If the domestic currency depreciates,a) using a graph of aggregate demand and supply EXPLAIN how monetary policymakers would respond (if at all) to stabilize economic activity. Assume the economy starts at a long-run equilibrium. b) using a graph of aggregate demand and supply EXPLAIN how lags in this policy process (mentioned in (a)) can result in undesirable fluctuations in output and inflation. EXPLAIN EVERYTHING IN DETAIL PLEASE
A country's central bank is engaging in monetary contraction, with M going from M0=40 to M1=20. Its economy is as follows. Goods: slc = 3 MPC = 0.7 G = 10 T = 9 Before the policy, the goods market equilibrium is at Y0 = 54. Financial: I = 18-200r Before the policy, the loans market equilibrium is at r = 4.25% and I = 9.5 Money: M0 = 40 P0 = 2 M/P = 0.02 / (r - Y/5000)^2 and finally, Labor: w = MPL = 0.5 * 4.5 * 16^0.6 / L^0.5 w = EP / P0 * L^0.5 Where workers currently expect the price level of EP=2. - There are four endogenous variables that adjust in response to shock/policy: Y, I, r, P. The policy variable of interest is M. Therefore, let's approach our solution by first recognizing that all other letters are just constants and plug them in. For example: Y = 2 + 0.5(Y-6)+7+I becomes Y = 12 + 2*I First, express the goods market as expenditure being a linear function of investment I of the form: Y = a + b*I 1. How does the monetary contraction directly and immediately affect the…
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.
Why might Keynesians be pessimistic about the ability of monetary policy to stimulate output in situations such as the 1930s Depression in the United States or the recessions in Japon in the 1990s? What type of policy would Keynesian economists expect to be effective in such situations?Explain by diagrams.
3. A. Suppose a collapse in consumer spending lowers GDP below potential and causes deflation in the economy. With the monetary policy rule that follows the Taylor Principle (the typical one we assume in lecture) should the central bank increase GDP above potential GDP? Why? B. In order to increase GDP what must the central bank do to interest rates? Is it always possible to raise GDP by changing the nominal interest rate? Why or why not?

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