If a central bank wants to make sure that its policy actions are successful in manipulating interest rates to stabilize an economy around its full-employment level, it should Multiple Choice be prepared to make modest and frequent adjustments after receiving feedback on how its actions affect the economy never announce its intentions, because financial markets will always overreact frequently change its policies to keep financial markets guessing react to a high rate of Inflation but not to an economic boom focus on Inflation and output gap equally

If a central bank wants to make sure that its policy actions are successful in manipulating interest rates to stabilize an economy around its full-employment level, it should Multiple Choice be prepared to make modest and frequent adjustments after receiving feedback on how its actions affect the economy never announce its intentions, because financial markets will always overreact frequently change its policies to keep financial markets guessing react to a high rate of Inflation but not to an economic boom focus on Inflation and output gap equally

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 6CQQ

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Similar questions

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Explain why it is not possible for growing economies to have price stability whenthe money supply is constant
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Question 4Suppose a country’s inflation level is higher than desired, and unemployment levels arelower than expected – the central bank decides that the economy is ‘overheated’ andattempts to use the appropriate monetary policy to deal with the situation. Describe,with the help of the appropriate figure, how a central bank might go about implementingsuch monetary policy, the subsequent effects this has on interest rates, the quantity ofmoney in the market, and the process through which this affects the level of expenditurein the economy.
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Explain why monetarypolicymakers can target any inflation ratein the long run butcannot target a levelof aggregate output inthe long run
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There is currently a political and academic controversy whether or not stimulus packagesagainst the Covid-induced economic recession will cause inflation. Professor OlivierBlanchard has warned that the stimulus package of the US-administration may lead toinflation in the US. However, he does not see inflation dangers emanating from stimulusprograms in the Eurozone. The Next Generation EU program is not only considered to be a stimulus program but also tobe a growth program, which by spending on infrastructure and climate-related investmentsis expected to lead to an increase in potential output.Analyze in an AD-AS model the impact of economic growth on actual GDP and the pricelevel. Also elaborate on the role that an additional demand stimulus could play.
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