The hypothetical information in the following table shows what the values for real GDP and the price level will be in 2017 if the Fed does not use monetary policy: Year Potential GDP (trillion) $17.7 $18.1 Real GDP (trillion) Price level 2016 2017 a. If the Fed wants to keep real GDP at its potential level in 2017, should it use an expansionary or contractionary policy? Should the Fed buy or sell Treasury bills? $17.7 114 $17.9 116 b. Suppose the Fed's policy is successful in keeping real GDP at its potential level in 2017. States whether each of the following will be higher or lower if the Fed had taken no action. I. Real GDP II. The inflation rate III. The Unemployment rate

The hypothetical information in the following table shows what the values for real GDP and the price level will be in 2017 if the Fed does not use monetary policy: Year Potential GDP (trillion) $17.7 $18.1 Real GDP (trillion) Price level 2016 2017 a. If the Fed wants to keep real GDP at its potential level in 2017, should it use an expansionary or contractionary policy? Should the Fed buy or sell Treasury bills? $17.7 114 $17.9 116 b. Suppose the Fed's policy is successful in keeping real GDP at its potential level in 2017. States whether each of the following will be higher or lower if the Fed had taken no action. I. Real GDP II. The inflation rate III. The Unemployment rate

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 3PA

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E 1.7 The hypothetical information in the table below shows what the values for real GDP and the price level would have been in 2019 if the Federal Reserve did not use monetary policy: 4¹ F3 Year 2018 2019 49 $ 4 a) If the Fed wanted to keep real GDP at its potential level in 2019, should it have used an expansionary policy or a contractionary policy? Should the trading desk have bought T- bills or sold them? b) Suppose the Fed's policy was successful in keeping real GDP at its potential level in 2019. State whether each of the following would be higher or lower than if the Fed had taken no action: R a. Real GDP b. Full-employment real GDP c. The inflation rate d. The unemployment rate c) Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2018 and 2019; SRAS curves 2018 and 2019; AD curve for 2018 and 2019, with and without monetary policy actions; and equilibrium real GDP and the price level in 2019 with and…
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3. If the FED can only directly control nominal interest rates, how does the FED influence real interest rates that determine the actual stance of monetary policy?
1. For each of the following questions, draw the Money Demand curve (MD) and Money Supply curve (MS) and label the equilibrium interest rate as i*. Also show how the MS- MD graph changes due to the given events and as a result how the equilibrium interest rate changes. (In your answer you should clearly state and show what happens to the MS and MD curves and also what happens to the interest rate). a) The Fed lowers the RRR b) Taxes decrease
What is the FED's decision-making strategy regarding the assessment of state of economy? (explain about each of the three variables used by FED in a separate paragraph) What happens when the Fed lowers the federal funds rate by buying securities in an open market? Show step by step how the FED fights inflation by using your graphs. How does the FED adjust the quantity of monetary base by using open market operations?
What happen to the money market equilibrium when the Fed raises its interest rate target to 6 percent a year following the increase in real GDP? The interest rate _______ and the equilibrium quantity of money _______. A. remains at 5 percent; increases B. rises to between 5 and 6 percent; decreases C. rises from 5 to 6 percent; decreases D. rises from 5 to 6 percent; might increase, decrease, or not change
A columnist in the Wall Street Journal refers to “the fear that central banks are powerless to act when rates hit zero.” a. With respect to the Federal Reserve, which interest rate would be likely to hit zero? b. During the recession caused by the 2020 Covid-19 pandemic, was the Fed powerless to act when the rate you identified in part a. hit zero? If not, which monetary policy tools did the Fed rely on?
The following table gives the quantity of money demanded at various price levels (P), the money demand schedule. In the following table, fill in the column labeled Value of Money. Quantity of Money Demanded Price Level (P) Value of Money (1/P) 1.00 1.00 (Billions of dollars) 2.0 1.33 0.75 2.00 0.50 4.00 0.25 2.5 4.0 8.0 ما Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the less required to complete transactions, and the more money people will want to hold in the form of currency or demand deposits. money
4. The hypothetical information in the following table shows what the values for real GDP and the price level will be in 2017 if the Fed does not use monetary policy. Year Potential GDP Real GDP Price level 2016 $17.7 trillion $17.7 trillion 114 2017 18.1 trillion 17.9 trillion 116 If the Fed wants to keep real GDP at its potential level in 2017, should it use an expansionary policy or a contractionary policy? Briefly explain your answer. b. Suppose the Fed's policy is successful in keeping real GDP at its potential level in 2017. State whether each of the following will be higher of lower than if the Fed had taken no action. а. I. Real GDP II. Potential GDP III. The inflation rate IV. The Unemployment rate c. Draw an AD and AS graph to illustrate your answer. Be sure your graph contains LRAS , SRAS, and AD curves for 2016 and 2017, with and without monetary policy action.
3 E 1.7 The hypothetical information in the table below shows what the values for real GDP and the price level would have been in 2019 if the Federal Reserve did not use monetary policy: Real GDP F3 Year 2018 2019 Cxpansionary Di bills or sold them? $ d wanted to keep real GDP at it R a. Real GDP b. Full-employment real GDP c. The inflation rate d. The unemployment rate F4 b) Suppose the Fed's policy was successful in keeping real GDP at its potential level in 2019. State whether each of the following would be higher or lower than if the Fed had taken no action: Potential Real GDP $18.5 trillion 19.0 trillion I c) Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2018 and 2019; SRAS curves 2018 and 2019; AD curve for 2018 and 2019, with and without monetary policy actions; and equilibrium real GDP and the price level in 2019 with and without policy. % 5 T F5 O Search A 6 $18.5 trillion 19.4 trillion F6 Y F7 &…
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.
23. What is an implication of the neutrality of money in the long run? The economy's level of potential output will adjust to accommodate any change in the money supply. Changes to the money supply have no effect on either the price level or real GDP. In response to any change in the money supply, the demand for money will adjust to cancel out its effects on all macroeconomic variables. Changes to the money supply never have any effect on real GDP. In response to any change in the money supply, the economy's adjustment process will bring Y back to Y*, which is unaffected by the change in the money supply.