It is 1979 and there is a sudden decline in oil supplies due to political turmoil in the Middle East. This event sends the price of crude oil skyrocketing and depresses output and employment (AS shifts left). You are the chairman of the Fed and therefore you need to respond with a change in monetary policy in order to tackle stagflation (high inflation and high unemployment). What could you propose and what are the tradeoffs? Your answers should be based on the use of the AS-AD model. Explain which curves are shifting and in what direction and what are the tradeoffs in terms of the Fed's two goals.

It is 1979 and there is a sudden decline in oil supplies due to political turmoil in the Middle East. This event sends the price of crude oil skyrocketing and depresses output and employment (AS shifts left). You are the chairman of the Fed and therefore you need to respond with a change in monetary policy in order to tackle stagflation (high inflation and high unemployment). What could you propose and what are the tradeoffs? Your answers should be based on the use of the AS-AD model. Explain which curves are shifting and in what direction and what are the tradeoffs in terms of the Fed's two goals.

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

Section24.3: Using Policy To Stabilize The Economy

Problem 3QQ

See similar textbooks

Similar questions

28) When the Fed raises the federal funds rate A) the value of the dollar rises on the foreign exchange market. B) consumption increases. C) net exports increase. D) the value of the dollar falls on the foreign exchange market. 29) An inflation rate targeting rule A) reduces uncertainty about monetary policy. B) means that the inflation rate must exceed 5 percent in order for the rule to be effective. C) has been adopted the by the Fed in response to the financial crisis of 2008-2009. D) will not work if the Fed continues to sue open market operations.
How does high inflation lead to a recession in the country? Explain the role ofthe Government and the Central Bank to address the economic recessionproblem by using appropriate fiscal and monetary policies. Are there anypotential problems with such policies?( Answer in 1000 words)
These questions involve the Federal Reserve’s monetary policy tools. a. Imagine that the FOMC suddenly discovers that it needs to drastically cut the amount of M1 in the country in a very short amount of time. Which of the three tools would you suggest they use, how, and why?b. Now suppose that the FOMC determines that the cut doesn’t need to be that drastic, and the window of time is significantly longer than originally thought. Which of the three tools would you suggest they use, how, and why?
Policies and Policymakers “Bank Indonesia (BI) has emphasized that it will not print money to help fund the surge in government spending to fight the COVID-19 pandemic. BI Governor Perry Warjiyo said the suggestion to print money was not a prudent monetary policy, pledging that the central bank would never take the measure. “This is an unusual policy and BI will never take such measures, including giving out money to the general public to face the COVID-19 pandemic,” Perry told reporters on Wednesday. “I am very sorry, but we should not confuse the public.”” -The Jakarta Post Why did BI decide on the prudent policy, which is to not to print money despite the fear of economic recession due to Covid-19 pandemic? What are other policy options for a central bank during the crisis?
Assume the United States economy is operating at a recession. a. Using a correctly labeled aggregate demand and supply graph, show Full employment output (yf) Current output (Q1) Current price level (PL1) b. What are The Fed’s three policy choices for how to get the US back to full employment? c. Using a correctly labeled graph of the money market, show how the open market operation you identified in #2 will affect the interest rate in the short run.
Expansionary monetary policy is when: None of the statements are correct. The president and congress agree to lower interest rates. The president orders the Federal Reserve to cut income taxes. The Federal Reserve reduces the regulations hindering our business community. The Federal Reserve increases the nation's money and credit supply and raises interest rates. A Moving to the next question prevents changes to this answer. JUL 21 tv 11 A O COMMUNITY
The central bank of a country facing economic and financial market difficulties asks for your advice. The bank cut its policy interest rate to the effective lower bound, but it wasn't enough to stabilize the economy. Drawing on the actions taken by the Federal Reserve during the financial crisis of 2007-2009, what might you advise this central bank to do? Multiple Choice O You should advise the central bank to use unconventional monetary policy tools such as quantitative easing, a policy in which the central bank alters the composition of its balance sheet, or credit easing, where aggregate reserves are provided beyond the level needed to lower the policy rate to zero. The central bank could also inform markets of its commitment to keep Interest rates low (forward guidance). Because the central bank has hit the zero bound with its policy Interest rate, there is nothing further it can do to Influence economic and financial market conditions. In the face of severe economic weakness, you…
Imagine that the economy is experiencing inflation and that the Reserve Bank of Australia (RBA) decides to implement a contractionary monetary policy or 'tight money' to return inflation to its target level. 1.What type of open market operations (OMOs) will the RBA undertake consistent with a contractionary monetary policy approach? 2. How will the money supply be affected? 3.Explain how the three stages of transmission process from a contractionary monetary policy link a change in interest rates with a change in an economy’s equilbrium level of output. 4.Using the IS-LM curve diagram, illustrate the impact of a contractionary monetary policy. Make sure to clearly indicate the new equilibrium position including the interest rate and output
The effectiveness of monetary policy depends on how easy it is for changes in the money supply to change interest rates. By changing interest rates, monetary policy affects investment spending and the aggregate demand curve. The economies of Albenia and Brittaniahave very different money demand curves, as shown in the accompanying diagram. In which economy, changes in the money supply will be a more effective policy tool? Why? Don,t copy from anywher . do answer step by step. Answer must be correct.
Please help me these two questions
i need help with the last question Suppose the economy is initially at long run equilibrium, when there is an unexpected increase in firm investment in the country.How does this impact the economy? (write out either "inflationary" or "recessionary" inflationary In response to this what monetary policy would the Fed employ? (write one of the following: "raise taxes", "lower taxes", "raise money supply", or "lower money supply"lower money supplyWhat is the most likely way the Fed will accomplish this change in the monetary policy? (write one of the following: "buy securities", "sell securities", "raise discount rate", "lower discount rate", or "legislation"sell securitiesThis action by the Fed will cause interest rates to _______. (Write out "increase" or "decrease"increaseThe end result of the monetary policy is a shift of which curve in which direction. (Write out one of the following: "AD right", "AD left" "AS left", "AS right"
V1