Starting at E₁ suppose the Fed uses expansionary monetary policy then LRAS Aggregate price level, P P₁ P₂ P₁ ..... E₁ E₂ AD₁ Yo Y₁ SRAS₂ AD₂ SRAS₁ Real GDP O AD₁ will shift to AD2 and the economy will move from E₁ to E2. O SRAS₁ will shift to SRAS2 and the economy will move from E₂ to E3. SRAS₂ will shift to SRAS₁ and the economy will move from E3 to E2. AD₂ will shift to AD₁ and the economy will move from E₂ to E₁.

Starting at E₁ suppose the Fed uses expansionary monetary policy then LRAS Aggregate price level, P P₁ P₂ P₁ ..... E₁ E₂ AD₁ Yo Y₁ SRAS₂ AD₂ SRAS₁ Real GDP O AD₁ will shift to AD2 and the economy will move from E₁ to E2. O SRAS₁ will shift to SRAS2 and the economy will move from E₂ to E3. SRAS₂ will shift to SRAS₁ and the economy will move from E3 to E2. AD₂ will shift to AD₁ and the economy will move from E₂ to E₁.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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← 2:12 Principles of Macroe... Vo LTE 4G+ R vecmeccssary: what would have happened to aggregate demand and aggregate output: 6 Consider two economies - Avalon and Eternia. In Avalon, the central bank uses interest rates to conduct monetary policy. In Eternia, the central bank conducts monetary policy by changing the money supply. a Which economy would have a more effective monetary policy? Explain. b Which country would have higher inflation? Explain. 33% c Why can't Avalon and Eternia set both interest rates and money supply? 7 This chapter explains that expansionary monetary policy reduces the interest rate and thus stimulates demand for consumption and investment goods. Explain how such a policy also stimulates imports, exports and overall net exports. (You may need to refer to chapter 13 to answer this question.) 8 Suppose economists observe that an increase in government spending of $10 billion raises the total demand for goods and services by $30 billion. a Is crowding out…
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Which of the following statements is true for the scenario illustrated in the below diagram? LRAS Price Level (base year = 100) 120 110 100 90 80 400 SRAS E₁ 700 Eo AD AD₁ 500 600 Real Output (constant dollars) 800 O it illustrates a recessionary gap at Eo Oit illustrates expansionary monetary policy by shifting ADO to AD1 O it illustrates procyclical monetary policy O it can be caused by a tightening of the money supply, also known as contractionary monetary policy
QUESTION 3 Refer to the graph shown below. Suppose the economy is initially at A but then the Fed adopts a contractionary monetary policy. Using the AS/AD model reasoning, this policy will cause the economy to move to LAS Price level C D 4 0 OC in the short run COC in the short run SAS, SAS, AD AD, SAS, AD, Bel output CAA in the short run and the long run. B in the short run and the long run and A in the long run. and E in the long run.
In the short run, a rise in the federal funds rate shifts the a. AD curve leftward. b. SAS curve leftward. c. LAS curve leftward. d. None of these because a decrease in the quantity of money does not shift a curve.
a) Which of the follwing monetary policy actions can be used to close an inflationary gap?O No change in the money supply to keep interest rates constant.ODecrease the money supply to decrease interest rates,OIncrease the money supply to increase interest rates.O Increase the money supply to decrease interest rates.O Decrease the money supply to increase interest rates. b) Assume the economy is initially at full-employment equilibrium. Suppose the economy slows down and uncertainty increases, reducing consumption and investment expenditures, in the short run, this shock willcause the economy to fall below full enployment. To move the economy to a full-employment equilibrium, the Fed could:O. decrease government spendingO. increase corporate tax ratesO. lower the federal fund rate targetO. increase government spending O. raise interest rates
LEAS Od A-D-B SRAS, SEAS MAS Red GDP Refer to Exhibit 14-1. What sequence of points shows the short- and long-run consequences of a rise in velocity under monetarist assumptions? Ⓒ&A-E-B Ob.B-A OCB-D-A
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. Moving to the next question prevents changes to this answer. O JUL 21 tv 10 ^ O
Question 2 Full explain this question
. How does monetary policy affect aggregate demand? a) By influencing consumer spending only b) By influencing investment spending only c) By influencing both consumer and investment spending d) By influencing government spending only -. A central bank uses contractionary monetary policy to: a) Combat deflation