Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 15, Problem 7QP
To determine
Reflection of non-activist
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Students have asked these similar questions
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.
Which of the following is a policy tool
used to combat demand-pull inflation?
a) Contractionary fiscal policy
b) Expansionary monetary policy
Suppose that you are employed as an advisor to the central bank. Select the proper policy recommendation or economic prediction for each of the following scenarios.
Which policy is appropriate when a rising aggregate price level is a concern but GDP is growing at an acceptable rate?
contractionary or restrictive monetary policy (tight money policy)
It is unclear which type of monetary policy is appropriate.
expansionary monetary policy (easy money policy)
Which policy is appropriate when a rising aggregate price level is a concern and GDP is not growing at an acceptable rate?
It is unclear which type of monetary policy is appropriate.
contractionary or restrictive monetary policy (tight money policy)
expansionary monetary policy (easy money policy)
Contractionary or restrictive monetary policy (tight money policy) will cause interest rates to
increase sometimes and decrease sometimes.
decrease.
increase.
Chapter 15 Solutions
Macroeconomics
Ch. 15.1 - Prob. 1STCh. 15.1 - Prob. 2STCh. 15.1 - Prob. 3STCh. 15.4 - Prob. 1STCh. 15.4 - Prob. 2STCh. 15.4 - Prob. 3STCh. 15 - Prob. 1QPCh. 15 - Prob. 2QPCh. 15 - Prob. 3QPCh. 15 - Prob. 4QP
Ch. 15 - Prob. 5QPCh. 15 - Prob. 6QPCh. 15 - Prob. 7QPCh. 15 - Prob. 8QPCh. 15 - Prob. 9QPCh. 15 - Prob. 10QPCh. 15 - Prob. 11QPCh. 15 - Prob. 12QPCh. 15 - Prob. 13QPCh. 15 - Prob. 14QPCh. 15 - Prob. 15QPCh. 15 - Prob. 16QPCh. 15 - Prob. 17QPCh. 15 - Prob. 18QPCh. 15 - Prob. 1WNGCh. 15 - Prob. 2WNGCh. 15 - Prob. 3WNGCh. 15 - Prob. 4WNGCh. 15 - Prob. 5WNGCh. 15 - Graphically portray the Keynesian transmission...Ch. 15 - Prob. 7WNGCh. 15 - Prob. 8WNG
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- An appropriate monetary policy to address demand-pull inflationary pressure is: Hawkish Bearish Dovish Bullisharrow_forwardWhich of the following is NOT an example of monetary policy to restrict aggregate demand? a)Raising interest rates b)Reducing money supply c)Rationing credit d)Increasing income taxarrow_forwardBy using appropriate diagrams, discuss the role of the monetary and fiscal policies in the New Keynesian sticky price model.arrow_forward
- Monetary 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_forwardc) According to the AD-AS model, what is more challenging for a central bank: to use active exogenous monetary policy to offset a financial shock, or to use active exogenous monetary policy to offset an exogenous increase in prices due to an oil price shock? Use the model to discuss each case separately. Can the central bank avoid a drop in output and a variation in the price level? c) According to the AD-AS model, what is more challenging for a central bank: to use active exogenous monetary policy to offset a financial shock, or to use active exogenous monetary policy to offset an exogenous increase in prices due to an oil price shock? Use the model to discuss each case separately. Can the central bank avoid a drop in output and a variation in the price level?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_forward
- Explain in detail how policy rate affects aggregate demand through a monetary transmission mechanism.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_forwardShow graphically that the less responsive is investment to interest rates, the less effective is monetary policy as a stabilization tool.arrow_forward
- The latest residential property price data from the Australian Bureau of Statistics show that housing prices across the nation rose by more than 20 percent last year. Housing is the most important source of household wealth. Using the AD-AS model, predict how this development affects output and the price level in the short run and the long run, assuming that policymakers take no action. How would your answers differ if the central bank responded with a contractionary monetary policy?Please draw the short run and long run AD-AS graph.arrow_forwardIf policymakers use contractionary monetary policy to reduce inflation in the short run: they must be willing to accept a higher rate of unemployment. the unemployment rate will be below the natural rate of unemployment. the unemployment rate will be above the natural rate of unemployment. the unemployment rate will be at the natural rate of unemployment.arrow_forwardThe "rational expectations" school of economists, including Robert Lucas and Thomas Sargent, argue that changes in monetary policy cannot affect unemployment rates in the short run or long run. True Falsearrow_forward
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