Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 14, Problem 9CQ
To determine
Identify the role of
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a) Identify the four major tools of monetary policy. b) How can monetary policy address the problem of inflation?
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Economics: Private and Public Choice (MindTap Course List)
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- The use of monetary policy is highly debated among classical and Keynesian economists. Where do they agree and where do they disagree with respect to monetary policy?arrow_forwardThe United States Federal Reserve has two mandates when setting monetary policy - keep annual inflation low (around 2-3%) and the unemployment rate low (around 5%). Typically, efforts to adjust the money supply to cause inflation to decrease causes unemployment to increase and vice versa. Now, imagine a situation where the United States faces high inflation and high unemployment (called stagflation, was issue in late 1970s). What do you think the Federal Reserve should do in this situation?arrow_forwardWhat’s the difference between Nominal and Real variables in monetary policy?arrow_forward
- Which of these is an alternative to monetary policy and aims to reduce inflation? reduce the money supply raise government purchases reduce taxes increase taxesarrow_forwardThe monetary policy has two basic goals: to promote “maximum” sustainable output and employment and to promote “stable” prices (Federal Reserve Bank of San Franciso). Making these two goals possible is based off of more than just monetary. Technology is now included because technology can replace employment. If people decide to save, it can affect both employment and the goods that can be reduced. There are many other things that can affect the maximizing of sustainable output. The cause-effect chain through is that policy can have an effect on banks and money supply. The monetary policy also has an effect the way consumers spending and the interest rates that are given by banks. It can also affect the way people invest. The major strengths of monetary policy is that it stable prices. When inflation rises faster than expected, the Fed may sell government bonds to take money out of circulation or raise short-term interest rates (Federal Reserve Bank of San…arrow_forwardHello, I need help with a macroeconomics question. Thank you in advance! The answers are based on a short exerpt from the Federal Reserves press release from Feb 1, 2023 (attatchde below). 7. What do you expect to happen to the money supply? 8. What do you expect to happen to the inflation rate? 9. How would you expect all these decisions to affect employment in the economy? 10. How do the effects you found on 8 and 9 align with what the Fed was hoping to attain?arrow_forward
- Name a couple of “players” in the monetary supply process.arrow_forwardThe result of all the above is a “Great Recession.” Under a recession, output and incomes decrease, and unemployment increases. The Federal Reserve’s states that it must pursue objectives of full employment and price stability. When unemployment becomes problematic should the Federal Reserve conduct expansionary or contractionary monetary policy?arrow_forwardMonetary policy as one of the macroeconomic policies is generally implemented in line with the cycle of economic activity (business cycle). Based on this, answer the following questions: a) Explain what monetary policy is appropriate to apply when there is a decline in GDP, economic growth slows and there is a decline in the prices of goods? b) Explain what monetary policy is appropriate to apply when there is an increase in the amount of real output or economic growth and an increase in the price of goods? Explain!arrow_forward
- Suppose the economy is in inflation, give your suggestion how to end this problem using monetary policy.arrow_forwardCentral banks should target inflation within a wider band, say 1-4% or even 1-5%, to avoid unnecessary long lasting tightness of Monetary policy.” State True or False and justify your answerarrow_forwardHello, I would like help with this assignment Thank you! Monetary Policy Assume the economy is inflationary where Y>Y* and P<P* demonstrate the state of the economy graphically and explain. Assume the MPC for the US is 80% and the government decides to increase regulation on business such that the cost of doing business increases by 3% or $500 billion dollars per year in the aggregate. Demonstrate and explain your answer fully. What Monetary Policy should the Federal Reserve Implement? What choices do they have to effect this policy? Demonstrate and explain the effects of this policy on the economy? Hint use the 5 steps from classarrow_forward
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