Answered: Price level, P 2....lowers the price…

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter17: The Trade-off Between Inflation And Unemploy

Section: Chapter Questions

Problem 1TY

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Question

“The U.S. money supply is shrinking for the first time since 1949, as savings deposits decline and
the Federal Reserve shrinks its $8 trillion balance sheet. The drop stems mostly from changes in
Fed policy and rising interest rates.”

Adapted from:
https://www.goldmansachs.com/insights/articles/why-the-us-money-supply-is-shrinking
Accessed on 4 October 2024

1.1 In terms of the above statement, using the ONE most relevant diagram from below, discuss the
impact on the price level P, and income/output level Y. Include in your answer a discussion of
three (3) pros and cons each of the decision by the Fed to institute such an action.

Price level, P
2....lowers
the price
level in the
long run...
3.... but leaves
LRAS
1. A fall in aggregate
demand...
output the same.
DIAGRAM A
AD₂
Income, output, γ
DIAGRAM B
LM
IS'

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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