f the Federal Reserve conducts a policy of keeping GDP above its full-employment level for a long period of time options: real interest rates will fall in the short run and in the long run nominal interest rates will rise to reflect higher inflation expectations real interest rates will fall and nominal interest rates will fall in the long run nominal interest rates will fall in the short and long run

f the Federal Reserve conducts a policy of keeping GDP above its full-employment level for a long period of time options: real interest rates will fall in the short run and in the long run nominal interest rates will rise to reflect higher inflation expectations real interest rates will fall and nominal interest rates will fall in the long run nominal interest rates will fall in the short and long run

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter7: Inflation

Section: Chapter Questions

Problem 14SQ

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Suppose the public expects a 7 percent inflation rate, while the Federal Reserve unexpectedly allows the money growth rate to be 4 percent. In the short run, we expect that investment spending by firms will and consumer durable spending will 000 decrease; decrease increase; increase decrease; increase increase; decrease
If the Federal Reserve conducts a policy of keeping GDP above its full-employment level for a long period of time real interest rates will fall and nominal interest rates will fall in the long run real interest rates will fall in the short run and in the long run nominal interest rates will fall in the short and long run nominal interest rates will rise to reflect higher inflation expectations
Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. The quantity of physical capital The size of the labor force The level of technological knowledge The inflation rate Suppose the economy produces real GDP of $60 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve on the graph. Suppose the government passes a law that significantly increases the minimum wage. The policy will cause the natural rate of unemployment to (Rise/fall), which will: Not affect the long-run aggregate supply curve Shift the long-run aggregate supply curve to the right Shift the long-run aggregate supply curve to the left In the following table, determine how each event affects the position of the long-run aggregate supply (LRAS) curve. Direction of LRAS Curve…
Q10
Suppose the Federal Reserve begins to increase the supply of money at an increasing rate. What impact would that have on GDP, unemployment, and inflation?
Consider an economy with the following schedules of aggregate demand and short-run aggregate supply curves. The current expected inflation rate is 5%. Find the short-run equilibrium real GDP, and inflation rate. Is there a deflationary gap or an inflationary gap or neither? Is the equilibrium inflation rate equal to the expected inflation rate? What is full employment real GDP?
Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. The inflation rate C The price level C The level of technological knowledge The size of the labor force Suppose the economy produces real GDP of $70 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve on the graph. 132 128 LRAS 124 120 116 112 108 104 100 10 20 30 40 50 60 70 80 OUTPUT (Billions of dollars) Suppose the government passes a law that significantly increases the minimum wage. The policy will cause the natural rate of unemployment to which will: O Shift the long-run aggregate supply curve to the right O Shift the long-run aggregate supply curve to the left O Not affect the long-run aggregate supply curve PRICE LEVEL
Based on the picture, explain what happens to the aggregate demand. Describe your answer.
As a result of the change in real GDP, will an increase in the interest rate on bank loans lead to an expansion or a recession? What will happen to the unemployment rate? What will happen to the price level?
Describe the potential impact of increasing interest rates on the components of aggregate demand. Explain the potential impact, if any, on aggregate supply. Examine the impact on real GDP and the average price level of an increase in the interest rates.
The writing assignment requires applying your knowledge of how shifts in aggregate demand (AD) and aggregate supply (AS) affect the economy. Relevant knowledge is important because shifts in AD and AS affect all aspects of an economy, including output and unemployment. Using aggregate demand and aggregate supply, explain what happens in the short run if the Federal Reserve raises interest rates in the economy? Assume that the economy is at full employment before the interest rate increase. Be sure to detail what happens to: aggregate demand the price level the level of GDP and unemployment.
The graph shows an aggregate demand curve. Draw a curve that shows the effect on aggregate demand of an increase in the expected future inflation rate. Label it. 140- 130- 120- 110- 100- 90- Price level (GDP deflator, 2009=100) AD 99 80+ 11.0 11.5 12.0 12.5 13.0 13.5 14.0 14.5 15.0 Real GDP (trillions of 2009 dollars)

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	real interest rates will fall in the short run and in the long run
	nominal interest rates will rise to reflect higher inflation expectations
	real interest rates will fall and nominal interest rates will fall in the long run
	nominal interest rates will fall in the short and long run