For this question, refer to the Bank of Ghana's Monetary Policy Committee Press Release of May 21, 2018. a) Explain the difference between monetary loosening and monetary tightening. According to the statement, the MPC reduced the monetary policy rate by 100 basis points. Does this constitute a monetary loosening or monetary tightening? Explain. b) When deciding whether to tighten or loosen monetary policy, central banks weigh the relative risks to price stability and growth. Mention two indicators that the MPC use to gauge the risk to inflation and two indicators the MPC use to gauge the risk to growth. c) Based on the information in the Press Release, in the thinking of the MPC did the risk to growth outweighed the risk to inflation or vice versa? Refer to specific points from the press release to back up your argument. d) Using the money market diagram studied in class, explain the effect of this policy measure on the real interest rate. e) In ordinary language, explain how the reduction in the Monetary Policy Rate will help the relative risk identified in part (c) above.

For this question, refer to the Bank of Ghana's Monetary Policy Committee Press Release of May 21, 2018. a) Explain the difference between monetary loosening and monetary tightening. According to the statement, the MPC reduced the monetary policy rate by 100 basis points. Does this constitute a monetary loosening or monetary tightening? Explain. b) When deciding whether to tighten or loosen monetary policy, central banks weigh the relative risks to price stability and growth. Mention two indicators that the MPC use to gauge the risk to inflation and two indicators the MPC use to gauge the risk to growth. c) Based on the information in the Press Release, in the thinking of the MPC did the risk to growth outweighed the risk to inflation or vice versa? Refer to specific points from the press release to back up your argument. d) Using the money market diagram studied in class, explain the effect of this policy measure on the real interest rate. e) In ordinary language, explain how the reduction in the Monetary Policy Rate will help the relative risk identified in part (c) above.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 * 16^0.5 / L^0.5 w = EP / P0 * L^0.5 Where workers currently expect the price level of EP=2. How does the monetary contraction directly and immediately affect the goods market? 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…
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…
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