Q.8. The State Bank of Pakistan is considering two alternative monetary policies: i. holding the money supply constant and letting the interest rate adjust (LM curve is positively sloped), or ii. Adjusting the money supply to hold the interest rate constant (LM curve is horizontal). In the S-L model, which policy will better stabilize output under the following conditions? Note desired level of output is Y a. All shocks to the economy arise from exogenous changes in the demand for goods and services. b. All shocks to the economy arise from exogenous changes in the demand for money.
Q.8. The State Bank of Pakistan is considering two alternative monetary policies: i. holding the money supply constant and letting the interest rate adjust (LM curve is positively sloped), or ii. Adjusting the money supply to hold the interest rate constant (LM curve is horizontal). In the S-L model, which policy will better stabilize output under the following conditions? Note desired level of output is Y a. All shocks to the economy arise from exogenous changes in the demand for goods and services. b. All shocks to the economy arise from exogenous changes in the demand for money.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:Q.8. The State Bank of Pakistan is considering two alternative monetary policies:
i. holding the money supply constant and letting the interest rate adjust (LM curve is positively sloped), or
ii. Adjusting the money supply to hold the interest rate constant (LM curve is horizontal).
In the IS-L model, which policy will better stabilize output under the following conditions? Note desired level of output
is Y
a. All shocks to the economy arise from exogenous changes in the demand for goods and services.
b. All shocks to the economy arise from exogenous changes in the demand for money.
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