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n the graph you've just explored, if the Fed lowers the federal funds rate target range to 1.75 to 2.00 percent and conducts QE of $1 trillion, has the Fed done too little, too much, or got it just right to achieve full employment? A. Just right B. Too much C. Too little

n the graph you've just explored, if the Fed lowers the federal funds rate target range to 1.75 to 2.00 percent and conducts QE of $1 trillion, has the Fed done too little, too much, or got it just right to achieve full employment? A. Just right B. Too much C. Too little

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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In the graph you've just explored, if the Fed lowers the federal funds rate target range to 1.75 to 2.00 percent and conducts QE of $1 trillion, has the Fed done too little, too much, or got it just right to achieve full employment?

A. Just right

B. Too much

C. Too little

The image is an economic graph illustrating the relationship between Real GDP and the price level, using the GDP price index based on the year 2012 (set at 100). It includes the following elements: ### Graph Axes: - **Vertical Axis:** This axis represents the Price Level, depicted using the GDP price index. The values range from 104 to 116. - **Horizontal Axis:** This axis represents Real GDP in trillions of 2012 dollars, with values ranging from 18.4 to 21.6. ### Key Plot Lines and Labels: - **AD₀ and AD₁ (Aggregate Demand Curves):** - The graph contains two downward-sloping red lines indicating aggregate demand. The AD₀ curve is to the right of AD₁. - The shift from AD₀ to AD₁ depicts a decrease in aggregate demand. - **AS (Aggregate Supply Curve):** - A blue upward-sloping line representing the aggregate supply. - **Potential GDP:** - Shown as a vertical red line at 20.0 trillion dollars, indicating the economy's full employment output level. ### Indicators and Notations: - **Recessionary Gap:** - Illustrated by the horizontal distance between the real GDP at AD₁ intersecting AS and the potential GDP. The current equilibrium GDP is marked as 19.2 trillion dollars, while the potential is 20.0 trillion dollars. ### Legend & Annotations: - The legend shows other economic measures: - **Quantitative Easing:** Illustrated by a horizontal scale ranging up to 1 trillion dollars. - **Federal Funds Rate Target Range:** Indicated to be between 3.00 to 2.75 percent per year. - **Real GDP and Price Level and Reserves:** - Illustrated by black and white circles, indicating the real GDP level and reserves. This graph is useful for understanding macroeconomic concepts like recessional gaps, potential GDP, and the impact of monetary policies (like quantitative easing and federal funds rate adjustments) on aggregate demand and supply in an economy.
Transcribed Image Text:The image is an economic graph illustrating the relationship between Real GDP and the price level, using the GDP price index based on the year 2012 (set at 100). It includes the following elements: ### Graph Axes: - **Vertical Axis:** This axis represents the Price Level, depicted using the GDP price index. The values range from 104 to 116. - **Horizontal Axis:** This axis represents Real GDP in trillions of 2012 dollars, with values ranging from 18.4 to 21.6. ### Key Plot Lines and Labels: - **AD₀ and AD₁ (Aggregate Demand Curves):** - The graph contains two downward-sloping red lines indicating aggregate demand. The AD₀ curve is to the right of AD₁. - The shift from AD₀ to AD₁ depicts a decrease in aggregate demand. - **AS (Aggregate Supply Curve):** - A blue upward-sloping line representing the aggregate supply. - **Potential GDP:** - Shown as a vertical red line at 20.0 trillion dollars, indicating the economy's full employment output level. ### Indicators and Notations: - **Recessionary Gap:** - Illustrated by the horizontal distance between the real GDP at AD₁ intersecting AS and the potential GDP. The current equilibrium GDP is marked as 19.2 trillion dollars, while the potential is 20.0 trillion dollars. ### Legend & Annotations: - The legend shows other economic measures: - **Quantitative Easing:** Illustrated by a horizontal scale ranging up to 1 trillion dollars. - **Federal Funds Rate Target Range:** Indicated to be between 3.00 to 2.75 percent per year. - **Real GDP and Price Level and Reserves:** - Illustrated by black and white circles, indicating the real GDP level and reserves. This graph is useful for understanding macroeconomic concepts like recessional gaps, potential GDP, and the impact of monetary policies (like quantitative easing and federal funds rate adjustments) on aggregate demand and supply in an economy.
The image provides a graphical representation of macroeconomic concepts, focusing on the relationship between Price Levels, Real GDP, and monetary policy tools. **Graph Details:** - **Axes:** - The vertical axis represents the Price Level as the GDP price index (2012 = 100). - The horizontal axis represents Real GDP in trillions of 2012 dollars. - **Lines:** - A vertical red line labeled "Potential GDP" indicates the economy’s potential output level, where resources are fully employed. - The blue lines represent Aggregate Demand (AD). Two versions are shown: the original AD₀ and a shifted curve AD₁, indicating a change in demand. - The red line represents Aggregate Supply (AS). - **Equilibrium Points:** - The black dot indicates an original equilibrium where AD₀ intersects AS, suggesting an initial state of the economy. - The red arrow highlights a potential downward movement in AD from the AD₀ to AD₁, creating a new equilibrium point. - **Economic Concepts:** - A "Recessionary gap" is depicted, showing where actual GDP (19.2 trillion dollars) is less than the potential GDP (20 trillion dollars). This gap indicates underutilization of resources. **Policy Instruments:** - A depiction of monetary policy tools shows: - Quantitative easing is at 0 trillion dollars. - The Federal funds rate target range is between 2.00 to 1.75 percent per year, shown with a red slider. - A legend notes: - Real GDP and price level are indicated with a solid black dot in the graph. - Reserves are denoted with an open circle. This diagram is useful for illustrating shifts in aggregate demand and changes in economic equilibrium, emphasizing the role of fiscal policy and monetary policy in addressing recessionary gaps.
Transcribed Image Text:The image provides a graphical representation of macroeconomic concepts, focusing on the relationship between Price Levels, Real GDP, and monetary policy tools. **Graph Details:** - **Axes:** - The vertical axis represents the Price Level as the GDP price index (2012 = 100). - The horizontal axis represents Real GDP in trillions of 2012 dollars. - **Lines:** - A vertical red line labeled "Potential GDP" indicates the economy’s potential output level, where resources are fully employed. - The blue lines represent Aggregate Demand (AD). Two versions are shown: the original AD₀ and a shifted curve AD₁, indicating a change in demand. - The red line represents Aggregate Supply (AS). - **Equilibrium Points:** - The black dot indicates an original equilibrium where AD₀ intersects AS, suggesting an initial state of the economy. - The red arrow highlights a potential downward movement in AD from the AD₀ to AD₁, creating a new equilibrium point. - **Economic Concepts:** - A "Recessionary gap" is depicted, showing where actual GDP (19.2 trillion dollars) is less than the potential GDP (20 trillion dollars). This gap indicates underutilization of resources. **Policy Instruments:** - A depiction of monetary policy tools shows: - Quantitative easing is at 0 trillion dollars. - The Federal funds rate target range is between 2.00 to 1.75 percent per year, shown with a red slider. - A legend notes: - Real GDP and price level are indicated with a solid black dot in the graph. - Reserves are denoted with an open circle. This diagram is useful for illustrating shifts in aggregate demand and changes in economic equilibrium, emphasizing the role of fiscal policy and monetary policy in addressing recessionary gaps.
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