Economics: Private and Public Choice
16th Edition
ISBN: 9781337642224
Author: James D. Gwartney; Richard L. Stroup; Russell S. Sobel
Publisher: Cengage Learning US
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Chapter 15, Problem 6CQ
To determine
Explain the impact of an unexpected increase in the expansionary
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- Consider the Mundell-Fleming Model. In what respects is the Dornbusch model a compromise between the M-F and Monetary Models?arrow_forwardAccording to the rational expectations model, how would an announcement of expansionary monetary policy affect aggregate output? a) It would decrease aggregate output. b) It would increase aggregate output in both the short run and the long run. c) It would increase aggregate output in the short run. d) It would have no effect on aggregate output.arrow_forwardExplain why there is zero 'crowding out' in the IS-LM model with interest- setting monetary policy and endogenous money for levels of output up to full-employment?arrow_forward
- What is an open market operation? How can a central bank adopt an openmarket operation to increase the growth rate of her money supply? Usingrelevant Classical Theories, explain the long run effects on the inflation rateand nominal interest rate.arrow_forwardWhy are infation expectations so important to modern monetary policy?arrow_forwardMany economists believe that there is a long and variable time lag between the time a change in monetary policy is instituted and the time its primary impact on output, employment, and prices is felt. If true, how does this long and variable time lag affect the ability of policy-makers to use monetary policy as a stabilization tool?arrow_forward
- Are the following statements true or false? Justify your answer with macroeconomic theory. (a) An increase in public expenditure will always increase inflation more than output. (b) With a flexible inflation target, the central bank will emphasize both inflation and inflation exchange rate to an equal degree.arrow_forwardMarket participants, including financial institutions, fund managers, and corporations, must understand monetary policy setting impacts on economic activity and business A central bank will typically implement monetary policy settings in order to achieve certain economic outcomes over a business cycle. Choose two countries from the list below, describe the intermediate target for monetary policy, and explain the implementation process of the monetary policy in the two countries you selected. Give examples of different economic indicators that may give an insight into the future stages of a business cycle. the United States Australia Singapore China Russia New Zealandarrow_forwardMonetary policy set with discretion is said to feature an inflation bias because commitment to a rule could achieve lower inflation at no cost in terms of higher unemployment. True or False? Explain.arrow_forward
- The 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_forwardHow is a monetary policy rule helpful for understanding U.S. monetary policy?arrow_forwardIn the model SIM of chapter 3 of the book of Godley, Wynne, and Marc Lavoie. 2012. Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth. 2nd ed. 2012 edition., starting from a stationary state simulate the effect of an increase in government expenditure under four variations of the model: a model with simple adaptive expectations Y De = Y D−1, Discuss the trajectory of output from the original stationary state to the new one. G_D is Government goods demand, and theta is Tax rate,arrow_forward
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