MindTap Economics, 1 term (6 months) Printed Access Card for Mankiw's Principles of Macroeconomics, 8th (MindTap Course List)
8th Edition
ISBN: 9781337096591
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 22, Problem 7PA
Sub part (a):
To determine
The impact of contradictory monitory policy in different economic situations.
Sub part (b):
To determine
The impact of contradictory monitory policy in different economic situations.
Sub part (c):
To determine
The impact of contradictory monitory policy in different economic situations.
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On March 20, 2024, the statement that best describes the Federal Reserve's stance on inflation and interest rates for 2024 is:
Inflation is
on a
road to %.
Choose the words that best fill in the blanks.
Multiple Choice
moving down slowly, sometimes bumpy, 2%
moving down slowly, sometimes bumpy, 3%
moving down slowly, smooth, 3%
moving down quickly, sometimes bumpy, 2%
moving down quickly, sometimes bumpy, 3%
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The Federal Reserve uses an inflation target of 2-3%; most economists agree that the US natural rate of unemployment is around 4.5%.
Imagine that you are a policy analyst observing the government and the Federal Reserve. You determine that inflation is 1% (very low) and unemployment is hovering around 6.5% (quite high.)
The Federal Reserve responds by cutting interest rates and beginning to buy government bonds in open-market operations.
The government takes the position that the only way out of a recession is to decrease government spending and passes a budget with very little spending (this is called "taking austerity measures").
What effects would the Fed's actions have, if taken alone? What effects would the government's actions have, if taken alone? What do you predict will occur when both actions are taken? Who do you think is making the right suggestion?
Consider an economy that is initially in its long-run equilibrium. Suppose this economy suffers a temporary negative supply shock. If the central bank’s sole objective is to stabilize output in the short-run, then what will happen after the central bank has responded according to its objective?
A.
Inflation will be lower, output will back at its original level
B.
Inflation will be lower, output will be lower
C.
Inflation will be higher, output will be higher
D.
Inflation will be lower, output will be higher
E.
Inflation will be higher, output will be lower
F.
Inflation will be higher, output will back at its original level
Chapter 22 Solutions
MindTap Economics, 1 term (6 months) Printed Access Card for Mankiw's Principles of Macroeconomics, 8th (MindTap Course List)
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- You're a pricing analyst for a manufacturing firm. You are tasked with predicting how average prices will change over the next quarter to help your manager decide how to change her prices. How might you find the best estimate of the likely inflation rate? For the best estimate, obtain the average forecast of many economists. look to the financial markets. analyze surveys of people's inflation expectations. rely on the forecast of an eminent economist.arrow_forwardSuppose the economy is in a long-run equilibrium.a. Draw the economy’s short-run and long-run Phillips curves.b. Suppose a wave of business pessimism reduces aggregate demand. Show the effect of this shock on your diagram from part (a). If the Fed undertakes expansionary monetary policy, can it return the economy to its original inflation rate and original unemployment rate?c. Now suppose the economy is back in long-run equilibrium, and then the price of imported oil rises. Show the effect of this shock with a new diagram like that in part (a). If the Fed undertakes expansionary monetary policy, can it return the economy to its original inflation rate and original unemployment rate? If the Fed undertakes contractionary monetary policy, can it return the economy to its original inflation rate and original unemployment rate? Explain why this situation differs from that in part (b)arrow_forwardWhy are inflation expectations so important to modern monetary policy? What are several ways that central banks try to manage inflation expectations?arrow_forward
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