INTEREST RATE (Percent)4. The effect of monetary policy on aggregate demandSuppose the Federal Reserve ("the Fed") shifts to a contractionary monetary policy by selling bonds through open-market operations. Assume that thispolicy is unanticipated. This problem will work through the short-run effects of this move.The following graph shows the money demand and money supply curves. Show the effect of the Fed's contractionary monetary policy by shifting oneor both of the curves, and ignore any potential feedback effects. As a result of the Fed's policy, the interest rate toINTEREST RATE (Percent)0°300600Money SupplyMoney Demand-0-Money Supply9001200Money Demand15001800QUANTITY OF MONEY (Billions of dollars)The following graph shows the demand for investment. Show the short-run effect of the Fed's contractionary monetary policy by shifting the curve ormoving the point along the curve. Again, ignore any potential feedback effects. Be sure the new interest rate corresponds to the interest rate you haveon the top graph.n3090120150180INVESTMENT (Billions of dollars) PRICE LEVELINTEREST RATE (Percent)on the top graph.3080900120INVESTMENT (Billions of dollars)150180The following graph shows the aggregate demand (AD) and aggregate supply (AS) curves in the goods and services market before the Fedimplements its contractionary policy. Illustrate the effect of the change in investment demand you illustrated on the graph by shifting the appropriatecurve on the graph.REAL GDP (Trillions of dollars)Fill in the blanks to interpret the effect of the Fed's policy.ADASAD--ASWhen the Fed sells bonds, the amount of money in circulation in the economybusinesses to investThis drives interest rateswhich causesdemand,in capital improvements such as new factories and upgraded equipment. The result isin the equilibrium price level, andin aggregate▼in the equilibrium level of real GDP.

Monetary policies are the policies implemented by the central banks of a country with the intent to…

PRICE LEVEL INTEREST RATE (Percent) 0 30 80 Ο 90 120 INVESTMENT (Billions of dollars) 150 180 The following graph shows the aggregate demand (AD) and aggregate supply (AS) curves in the goods and services market before the Fed implements its contractionary policy. Illustrate the effect of the change in investment demand you illustrated on the graph by shifting the appropriate curve on the graph. REAL GDP (Trillions of dollars) AD AS AD -0- AS Fill in the blanks to interpret the effect of the Fed's policy. When the Fed sells bonds, the amount of money in circulation in the economy businesses to invest This drives interest rates which causes demand, in capital improvements such as new factories and upgraded equipment. The result is in the equilibrium price level, and in aggregate ▼in the equilibrium level of real GDP.

PRICE LEVEL INTEREST RATE (Percent) 0 30 80 Ο 90 120 INVESTMENT (Billions of dollars) 150 180 The following graph shows the aggregate demand (AD) and aggregate supply (AS) curves in the goods and services market before the Fed implements its contractionary policy. Illustrate the effect of the change in investment demand you illustrated on the graph by shifting the appropriate curve on the graph. REAL GDP (Trillions of dollars) AD AS AD -0- AS Fill in the blanks to interpret the effect of the Fed's policy. When the Fed sells bonds, the amount of money in circulation in the economy businesses to invest This drives interest rates which causes demand, in capital improvements such as new factories and upgraded equipment. The result is in the equilibrium price level, and in aggregate ▼in the equilibrium level of real GDP.

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

Which of the following scenarios would result in a decrease in Aggregate Demand? R A decline in investors confidence causes investment to fall. O Technology improvements lead to productivity gains O A rise in imports from Europe f5 O The congress passes a new income tax cut. 100 % 5 16 T e 6 6 3 Y ly 7 7 U 8 f10 num lk. 8 9 5 9 f12 F
5
Pls help me with this homework, I will upvote
The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $300 billion. Suppose households suddenly begin to spend less and save more in order to increase saving for retirement. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the sharp increase in saving. PRICE LEVEL 240 200 160 120 8 40 0 0 100 200 300 400 OUTPUT (Billions of dollars) AS AD 500 600 AD AS A In the short run, the decrease in consumption spending associated with the increase in saving causes the price level to price level people expected and the quantity of output to the unemployment rate to the the natural level of output. The sharp increase in saving will cause the natural rate of unemployment in the short run.
Suppose the Federal Reserve ("the Fed") shifts to a contractionary monetary policy by selling bonds through open-market operations. Assume that this policy is unanticipated. This problem will work through the short-run effects of this move. The following graph shows the money demand and money supply curves. Show the effect of the Fed's contractionary monetary policy by shifting one or both of the curves, and ignore any potential feedback effects. As a result of the Fed's policy, the interest rate to INTEREST RATE (Percent) 15 24 0 0 300 600 Money Supply 900 Money Demand 1200 1500 1800 QUANTITY OF MONEY (Billions of dollars) Money Demand -0- Money Supply The following graph shows the demand for investment. Show the short-run effect of the Fed's contractionary monetary policy by shifting the curve or moving the point along the curve. Again, ignore any potential feedback effects. Be sure the new interest rate corresponds to the interest rate you have on the top graph. INTEREST RATE…
3
QI. Suppose that in the coming monetary policy, central bank is planning to adopt expansionary monetary policy, so what will be its effect on AD? And then show this effect both on Short run aggregate supply curve (SRAC), and Long Run aggregate supply curve (LRAC), and what will its effect on prices and output?
✔ 2 Aplia Assignment Ch 20 4. Determinants of aggregate supply The following graph shows a decrease in short-ron aggregate supply (AS) in a hypothetical economy where the currency is the dollar Specifically, the short-un aggregate supply curve shifts to the left from AS, to AS, causing the quantity of output supplied at a price level of 100 to fall from $200 billion to $150 billion K 1 1 **### PRICE LEVEL 200 20 QUANTITY OF OUTPUT 380 400 The following table lists several determinants of short-run aggregate supply. Regulations on the firm Tax rates Input prices Complete the table by selecting the changes in each scenario necessary to decrease short-run aggregate supply Change Necessary to Decrease AS Grade It Now Save & Continue Continue without saving
5
Using the graph, illustrate the long-run impact of the increase in government spending by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve in the appropriate directions PRICE LEVEL 240 200 2 200 400 600 800 OUTPUT (Bions of dollars) AS 1000 1200 þ 2þ 2 In the long run, due to the increase in government spending, the price level natural level of output, and the unemployment rate ? the natural rate. the quantity of gotput
8a. Assume that an economy is at equilibrium at its potential GDP at $10 trillion and aprice level of 100. What would be the short-run impact of a significant fall in consumer confidence about the future? Provide an AD/AS model to support your answer. b. What policy would you recommend to the chairperson of the Federal Reserve? Be specific. Show the effect of this policy on your graph part a. c. What are the major goals of the Fed's monetary policy?
13