Suppose a Federal Reserve System Chairman known to have no interest in fighting inflation is appointed when the economy finds itself in the short-run equilibrium shown in the figure to the right. Given the chairman's preferences, it may be anticipated that monetary policy will be eased 1.) Using the line drawing tool in the accompanying figure, illustrate the consequence of this autonomous monetary policy change. Draw the curve such that a new long-run equilibrium is achieved. 2.) Using the point drawing tool, identify the new long-run equilibrium. Label this point 2. Carefully follow the instructions above, and only draw the required objects. Inflation Rate (percent) LRAS1 AS1 Q Q AD1 YPAggregate Output, Y ($ trillions)

Suppose a Federal Reserve System Chairman known to have no interest in fighting inflation is appointed when the economy finds itself in the short-run equilibrium shown in the figure to the right. Given the chairman's preferences, it may be anticipated that monetary policy will be eased 1.) Using the line drawing tool in the accompanying figure, illustrate the consequence of this autonomous monetary policy change. Draw the curve such that a new long-run equilibrium is achieved. 2.) Using the point drawing tool, identify the new long-run equilibrium. Label this point 2. Carefully follow the instructions above, and only draw the required objects. Inflation Rate (percent) LRAS1 AS1 Q Q AD1 YPAggregate Output, Y ($ trillions)

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

Suppose that the reserve requirement for checkingdeposits is 10 percent and that banks do not hold anyexcess reserves.a. If the Fed sells $1 million of government bonds,what is the effect on the economy’s reserves andmoney supply?b. Now suppose that the Fed lowers the reserverequirement to 5 percent but that banks chooseto hold another 5 percent of deposits as excessreserves. Why might banks do so? What is theoverall change in the money multiplier and themoney supply as a result of these actions?
"Under a regime of full monetary accomodation, if the output gap rises, " O Equilbrium money increases and the interest rate goes up Equilbrium money decreases and the interest rate goes down O Equilbrium money increases and the interest rate goes down O Equilbrium money decreases and the interest rate goes down O Equilbrium money increases and the interest rate stays constant
D) what kind of monetary policy might be helpful to stabilize the economy ( expansionary or contractionary)? E) what specific monetary policy tools does the federal reserve have available to use in this scenario? F) explain in detal, how should the federal reserve use each ofthese tools to maximize their effect in stabilizing the economy, what will be the likely effect of each monetary tool's use on the money supply , and the resulting impact on the economy
In regard to monetary policies, nonactivists have various proposals. True or False: Some nonactivists believe in a predetermined-money growth rate, which suggests that the monetary authorities should target the proper federal funds rate before implementing monetary policies. O True O False Which of the following statements best explains the difference between the Taylor rule and the two other nonactivist rules (the constant-money growth rate rule and the predetermined-money growth rate rule)? O The Taylor rule does not take into account the stability of prices. O The Taylor rule is not a derivation of the equation of exchange. O The Taylor rule suggests how much the money supply should grow. O The Taylor rule does not take into account the current state of the economy.
Occasionally, the Federal Open Market Committee (FOMC)sets a policy designed to “track” the interest rate. This meansthat the FOMC is pursuing policies designed to keep the interestrate constant. If, in fact, the Fed were acting to counter anyincreases or decreases in the interest rate to keep it constant,what specific actions would you expect to see the Fed take if thefollowing were to occur? (In answering, indicate the effects ofeach set of events on Y, C, S, I, Ms, Md, and r.)a. An unexpected increase in investor confidence leads to asharp increase in orders for new plants and equipment.b. A major New York bank fails, causing a number of worried peo-ple (not trusting even the FDIC) to withdraw a substantialamount of cash from other banks and put it in their cookie jars
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
Which of the following are examples of monetary policy that decrease aggregate demand? O A. a decrease in the quantity of money and an increase in interest rates O B. a decrease in taxes and a decrease in interest rates O C. an increase in transfer payments and an increase in interest rates O D. an increase in the quantity of money and a decrease in interest rates 身

Suppose that the Federal Reserve conducts an open market sale. This is considered monetary policy. In response, the size of the monetary base and the size of the money supply O contractionary; grows; grows by more expansionary: grows; grows by more contractionary; shrinks; shrinks by less O contractionary; shrinks; shrinks by more O expansionary; grows; grows by less
Explain why monetarypolicymakers can target any inflation ratein the long run butcannot target a levelof aggregate output inthe long run
1. Which of the following is concerned with changing the aggregate demand of thenation?A) External balanceB) Internal balanceC) Expenditure-changing policiesD) Expenditure-switching policiesAnswer: 2. Which of the following is an example of an expansionary monetary policy?A) Increase in TaxesB) Increase in the nation's money supplyC)Increased government expendituresD) Reduction in taxesAnswer:
Explain the uniquechallenges that monetary policymakersface at the zero lowerbound, and illustratehow nonconventionalmonetary policy canbe effective undersuch conditions.
Explain why it is not possible for growing economies to have price stability whenthe money supply is constant