In the figure to the right, the economy experiences inflation in the second period. What would be the Fed's reaction if actual real GDP occurs at point B and potential GDP occurs at LRAS₂? A. Open market sale of government securities B. Contractionary policy C. Increase interest rates D. All of the above

In the figure to the right, the economy experiences inflation in the second period. What would be the Fed's reaction if actual real GDP occurs at point B and potential GDP occurs at LRAS₂? A. Open market sale of government securities B. Contractionary policy C. Increase interest rates D. All of the above

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

What is the tradeoff that the Fed faces in the short run? In the short run, the Fed faces a tradeoff between ________. A. the nominal interest rate and the real interest rate B. monetary aggregates and credit aggregates C. short-term interest rates and long-term interest rates D. inflation and unemployment
classical economists a. argued that money supply determined aggregate demand b. believed that the quantity of money influences interest rates and real wages c. regarded monetary policy as unimportant since quantity of money does not determine price level. d. that prices would increase more than proportionate to an increase in money supply
Suppose a central bank targets an inflation rate of 3%. She projects a long-term economic growth rate of 4%. Suppose the new Chairman of the central bank will assume his duty next year. He is widely expected to be a “monetary hawk” – he favors a “tighter” growth in money supply. Other things being constant, how would this affect the expected inflation rate, nominal interest rate and the current general price level? Using relevant Classical Theories, briefly explain your answers.
Please correct answer and don't use hand rating
Monetary Policy: End of Chapter Problem Milton Friedman and Anna Schwartz argued in their Monetary History of the United States that money growth and velocity usually shift in the same direction. Thus, higher growth causes optimism and slower growth causes pessimism. They believed that velocity had its own shocks as well. a. Let's run through some examples of how this might work, in a setting where the Fed wants to keep AD growth stable at 10%. To keep things simple, we will assume that the Fed can control money growth perfectly. We will also assume that a 1% change in money growth causes a 0.5% shock to velocity growth in the same direction. Using these assumptions, fill in the missing values for the following table. For each case: AD = Initial Velocity Shock + Money Growth + Velocity Shock Caused by Money Growth Round your answer to the nearest hundredth. Year 2 money growth: Year 3 money growth: 254 15 Incorrect 8 incorrect Year 2 3 Initial Velocity Shock 4% 3% 16% 8% 4% 0% Year 2…
If the graph represents current conditions in the economy, the Fed is likely to conduct: A B C D expansionary monetary policy in response to the recessionary gap. expansionary monetary policy in response to the inflationary gap. contractionary monetary policy in response to the recessionary gap. contractionary monetary policy in response to the inflationary gap. Price Level (P) PE A LRASI SRAS AD QE QN Real GDP (Q)
Suppose the Fed wants to set the real interest rate 1 percentage point lower than the inflation rate. Nominal interest rates cannot fall below zero. a. Graph the MP curve for inflation values between -2% and 2%. b. Graph the AD curve. Label the inflation rate at which it kinks.
The economy of Carlsberg is presently in equilibrium, but is suffering a recession as depicted in the graph below. The central bank of Carlsberg is introducing an expansionary monetary policy to get the economy back to the full-employment level of real GDP. Price index 160 140 120 100 80 80 7 2 AS AD LAS 60 370 380 390 400 410 420 Real GDP (in billions) a. What increase in aggregate demand is necessary to achieve this? EA $ billions. b. If successful, what will be the growth rate? Round your answer below to 2 decimal places. % c. If successful, what will be the inflation rate? Round your answer below to 2 decimal places. %
When using the Fed model to diagnose the economy, if inflation rises even though the economy is weak or if it falls even though the economy is strong, then the economy has been hit by shock. an inflation a financial a supply a spending
If the fed buys bonds, price levels will: A. Increase B. Decrease C. No change
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Read the event The Federal Reserve raises reserve requirements. What would likely result from this event? A. An economy would see a slight decrease in aggregate demand. B. Interest rates on loans decline. C. Consumer demand would increase thus increasing prices. D. Inflation would reach levels that are acceptable for full employment.