Exhibit: Economic Adjustments If the economy is at point b, the Federal Reserve can close the output gap Group ofanswer choices by pursuing an expansionary monetary policy to raise the interest rate and decrease short run aggregatesupply. by pursuing a contractionary monetary policy to drive down the interest rate and decrease aggregate demand.by pursuing an expansionary monetary policy to drive down the interest rate and decrease short run aggregate supply.by pursuing a contractionary monetary policy to raise the interest rate and reduce aggregate demand.P/bar (per year)PricelevelLRASCdabSRAS2SRASIY₁ Y₁ YbADIAD2Real GDP per year

In the given figure, the economy is at point b, where the Short-Run Aggregate Supply (SRAS)…

Answered: Exhibit: Economic Adjustments If the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume the Pakistan’s economy is in recession:Pakistan implements a combination of expansionary fiscal and monetary policy. In the absence of complete crowding out what will be the effect of these policies on each of the following: Aggregate demand in Pakistan The price level in Pakistan Interest rates in Pakistan
C = 50 + 0.9 · (Y – T) I = 50 – 1000 - r where Y is real output and r is the real interest rate. Government purchases and taxes are Ğ = 500, T = 500. The money market equilibrium curve-or LM curve-is where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying M = 10000 units of money, and expected inflation is zº = 0.05. The long-run aggregate supply (LRAS) is Y, = 1000. Suddenly, there is a climate shock that changes the marginal propensity to consume (MPC), and the consumption function changes to C' = 50 + 0.8 · (Y – T). 1. Explain how the short-run values of (r, i) are determined before the climate shock. 2. Which, if any, of the graphs from Appendix A best depicts the short-run change in the interest rate(s) due to the climate shock? Explain. 3. Which, if any, of the graphs from Appendix B best depicts the short-run change in output and price due to the climate shock? Explain. 4. Which, if any, of the graphs from Appendix C best…
3. Suppose the monetary policy curve is given by r = 1.5 +0.75 , and the IS curve is given by Y = 13- a) Find the expression for the aggregate demand curve. b) Calculate aggregate output when the inflation rate is at 2%, 3%, and 4%. c) Plot the aggregate demand curve and identify the three points from part (b).
Net fx position -$75 billion. Inflation, budget deficit and unemployment are very high and growth rate is low, though credit expansion in the recent years is huge. President still claims that they will decrease the interest rate. Would monetary and fiscal policies be effective under these circumstances? Feat
Respond to the following in a minimum of 175 words: Explain the chain of events that occurs for expansionary and contractionary monetary policy to affect the long-run equilibrium level of real gross domestic product (GDP). Compare and contrast expansionary and contractionary fiscal policy.
The Fed's target for the federal funds rate A)is a goal that is rarely acheived because the fed can determine only the money supply B) is an extra policy tool for the central bank, in addition to and independent of the money supply C) commits the fed to set a particular money supply so that it hits the annouced target D) matter to banks that borrow and lend federal fund but does not influence aggregate demand.
20) Use a graph to show the differences in the central bank reaction function if the Fed is more tolerant or less tolerant of deviations from inflation in the short run. 21) For each of the following scenarios, state the short-run effect on the AD curve. a. The price level decreases. b. The target inflation rate increases. c. The U.S. dollar falls in value relative to other currencies. d. Government spending increases. e. The Fed becomes more tolerant of deviations from the target inflation rate. 22) Explain why some shifts to the aggregate demand curve are temporary and why some are permanent.
According to the table below, this is what is occurring in a specific country. AD (in Index billions) $975 $900 $825 $750 $675 $600 $525 $450 $375 SRAS (in billions) $375 $450 $525 $600 $675 $750 $825 $900 $975 Explain what policy lags are and exhibit how it varies for fiscal and monetary authority. LRAS (in billions) $900 $900 $900 $900 $900 $900 $900 $900 $900 Price 60 70 80 90 100 110 120 130 140
From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, then the president and the Congress would most likely increase the required reserve ratio and decrease government spending. decrease government spending. decrease oil prices. decrease taxes. lower interest rates.
None
According to the aggregate demand and aggregate supply model, in the long run a decrease in the money supply leads to A) decreases in both the price level and real GDP. B) an increase in real GDP and an increase in the price level. C) a decrease in the price level but does not change real GDP. D) an increase in the price level but does not change real GDP.
As you have learned in Unit 8 (this week), monetary and fiscal policy play important roles in economic stimulation and or stabilization. In this regard: a. When is it appropriate to use monetary and fiscal policy to stimulate or stabilize the economy? b. When is it inappropriate to use monetary and fiscal policy to stimulate or stabilize the economy? c. What specific fiscal policy tools would you use to stimulate aggregate demand and how? d. What specific monetary policy tools would you use to stimulate aggregate demand and how? e. What is your conclusion, should policymakers use the monetary and or fiscal policy to stimulate aggregate demand? Explain briefly.

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