Suppose the U.S. economy is initially at long run equilibrium, when there is an unexpected economic boom across Europe in the country. How does this impact the U.S. economy? (write out either "inflationary" or "recessionary"inflationary In response to this what monetary policy would the Fed employ? (write one of the following: "raise taxes", "lower taxes", "raise money supply", or "lower money supply"lower money supply What is the most likely way the Fed will accomplish this change in the monetary policy? (write one of the following: "buy securities", "sell securities", "raise discount rate", "lower discount rate", or "legislation"sell securities This action by the Fed will cause interest rates to _______. (Write out "increase" or "decrease" The end result of the monetary policy is a shift of which curve in which direction. (Write out one of the following: "AD right", "AD left" "AS left", "AS right"

Suppose the U.S. economy is initially at long run equilibrium, when there is an unexpected economic boom across Europe in the country. How does this impact the U.S. economy? (write out either "inflationary" or "recessionary"inflationary In response to this what monetary policy would the Fed employ? (write one of the following: "raise taxes", "lower taxes", "raise money supply", or "lower money supply"lower money supply What is the most likely way the Fed will accomplish this change in the monetary policy? (write one of the following: "buy securities", "sell securities", "raise discount rate", "lower discount rate", or "legislation"sell securities This action by the Fed will cause interest rates to _______. (Write out "increase" or "decrease" The end result of the monetary policy is a shift of which curve in which direction. (Write out one of the following: "AD right", "AD left" "AS left", "AS right"

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter14: Banking And The Money Supply

Section: Chapter Questions

Problem 4.8P

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3. What Is Monetary Policy?
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. Based on your knowledge of the Quantity Theory of Money and the Equation of Exchange, answer the following questions. Assume the Bank of Canada has been instructed by the government to maintain a constant price level in the economy. What should it do if the economy experiences a boom in the business cycle that increases the real GDP increases by 3.5%? Explain briefly. Assume the Bank of Canada has been instructed by the government to maintain a constant price level in the economy. What should it do if the velocity of money declines by 2%? Explain briefly. Assume the Bank of Canada has been instructed by the government to maintain a constant price level in the economy. What should it do if the economy experiences a recession in which the real GDP declines by 3%? Explain briefly. Assume the money supply is $1,200 billion, the velocity of circulation is 8, and the price level is $6. What is the level of real output and nominal output? Assume the money supply is $1,200…