4. Monetary policy and the Phillips curveThe following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initialunemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium.Suppose the central bank of the hypothetical economy decides to increase the money supply.On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of thispolicy.Hint: You may assume that the central bank's move was unanticipated.INFLATION RATE (Percent)65N100SR Phillips Curve+423UNEMPLOYMENT RATE (Percent)15SR Phillips CurveIn the short run, an unexpected increase in the money supply results inthe unemployment rate.(?)in the inflation rate andin On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the long-run effects of theincrease in the money supply.INFLATION RATE (Percent)653N1024UNEMPLOYMENT RATE (Percent)15In the long run, the increase in the money supply results inunemployment rate (relative to the economy's initial equilibrium).?in the inflation rate andin the

It can be defined as a form of graphical of the concept of economics which shows the rate of…

The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to increase the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated.

The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to increase the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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“…monetary policy works on two principal economic variables: the aggregate supply of money in circulation and the level of interest rates”. (Todaro & Smith, 2020: 803). Contrast the Monetarist and Keynesian theories of economic activity. In your answer: • From the Keynesian viewpoint, explain how interest rates can influence investment projects and ultimately the level of economic activity.
Some economists argue that suddenly reducing money supply growth is a costly way to reduce inflation and that it may not work. For example, if a government cuts money growth but makes no real fiscal reforms, people will expect the government will eventually need to expand the money supply to pay for its expenditures. Thus, the promise to fight inflation will not be credible. Explain why credibility is important to a reduction in the inflation rate.
The long-run effects of monetary policy The following graphs plot the long-run equilibrium situation for an economy. The first graph plots the aggregate demand (AD) and long-run aggregate supply (LRAS) curves. The second graph plots the long-run and short-run Phillips curves (LRPC and SRPC, respectively). LRAS H AD 3 6 9 12 OUTPUT (Trillions of dollars) PRICE LEVEL 0 15 18 AD 441 LRAS
What Can the Fed Do about Inflation? In the article by Thomas Hogan, we learn that Russia's invasion of the Ukraine nor the shortage or supply chain issues has not derived the main causes of inflation. (Hogan, 2022) The main cause for the issues that we have been facing come directly from the constant price changes and the monetary policy that is currently in place. We learn that with Federal Open Market Committee (FOMC) has not adjusted their monetary policy, and have been raising the rates in such small increments that is causing the inflation to continue in an upward trend. What needs to occur is the FOMC needs to raise interest rates in greater scales in order the combat the inflation that is taking place and stabilize the price levels that are out there. (Hogan, 2022) What needs occur is that the Fed needs to come up with a policy that will allow for a predetermined path that slows down and regulating the money growth back to a safe place. Having the guidance from the article…
The economy was in equilibrium; the rate of inflation was on target. An increase in the level of technology in period 1 leads to an increase in potential output. a) Use a graph of the DAD-DAS curves to show the short and long-run consequences of the increase in potential output. Explain the shifts of the curves. b) Suppose that the increase in potential output is accompanied by a permanent reduction in the level of the central bank's inflation target. Use a graph of the DAD-DAS curves to show the short and long-run consequences of the increase in potential output and the change in inflation target. Explain the shifts of the curves.
1. Based on the most recent announcement made by the RBA Governor (see the RBA Statement on the Monetary Policy Decision for May 2023 below), identify what type of monetary policy did the RBA implement in this announcement? Which part of the AD-AS model is this policy aiming to shift and in what direction? What does the RBA’s monetary policy decision tell us about which phase of the business cycle we are currently in, and which economic indicator the RBA is most concerned about? (3-4 sentences) 2. In its announcement, the RBA Governor refers to “the importance of returning inflation to target.” As part of your Policy Brief, explain what is meant by the inflation target and how does an inflation target contribute to good economic management? Based on the news updates that we discussed in our lectures and tutorials throughout this course, what are some factors that are currently contributing to inflationary pressures in Australia and globally, and which part of the AD-AS model are…
Monetary policy and the Phillips curve The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to decrease the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. In the short run, an unexpected decrease in the money supply results in (increase, decrease, no change) in the inflation rate and (increase, decrease, no change) in the unemployment rate.
In terms of what central banks can accomplish in the short and long run, what statement is most accurate? Central banks can influence output, inflation, and unemployment in the short run, but can only influence inflation in the long run. Central banks can influence output, inflation, and unemployment both in the the short run and in the long run. Central banks can influence output, inflation, and unemployment in the long run, but can only influence inflation in the short run. Central banks can influence output, inflation, and unemployment in the short run, but have no influence in the long run.
A well-known economic model called the Phillips Curve (discussed in The Keynesian Perspective) describes the short run tradeoff typically observed between inflation and unemployment. Based on expansionary and contractionary monetary policy, explain why one of these variables usually falls when the other rises.
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"Considering the Taylor Rule for monetary policy, which action would a central bank most likely take if the actual inflation rate is below the target inflation rate and the real GDP is above the potential GDP? A) Increase the interest rate to reduce inflation. B) Decrease the interest rate to stimulate inflation. C) Keep the interest rate unchanged, as the effects on inflation and GDP are offsetting. D) Increase the money supply to reduce the real GDP to its potential level.
Suppose the economy is in long-run equilibrium with GDP approaching $23T and the unemployment rate is approaching 4%. Now, let's say that the Fed has decided to decrease the money supply by 6%! The Fed proposes this move by raising the Prime Rate from the current 3.25 to 4.00 and to sell a new trunk or class of 30-year Treasury Bonds. This was not expected! What might be the short and long run effects on the economy as a whole if this were to take place? What happens to the inflation rate? What happens with unemployment? Like I said, this was actually expected that the Fed might take some sort of constriction action to stave off reduce inflation and to strengthen the money supply. However, President Biden, Congress and the Treasury Department had hoped for no contraction of the money supply until 2023.