Explain the given statement and identify why the primary goal of Fed is price stability.

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Answer 1

Question

Chapter 31, Problem 1SPA

To determine

Explain the given statement and identify why the primary goal of Fed is price stability.

Expert Solution & Answer

Explanation of Solution

The monetary policies of the Fed always are set to achieve its basic primary goals of maximum employment, stable prices, and moderate long-term interest rates, in which, the price stability is treated as the primary goal. The reason is that this primary goal directly meets the second goal and indirectly meets the remaining two goals of Fed. Because when an economy achieves price stability, it indicates that the inflation rate is low. A lower price level will help to maintain the long-term interest rate. On the contrary, when the price level is stable, consumers and investors will be more interested to increase the expenditure. As a result, the unemployment rate will close the natural rate of unemployment. Hence, the Fed always sets the price stability as a primary policy goal to meet its objectives.

Economics Concept Introduction

Monetary policy: The monetary policies are the policies taken by the central bank to chase its objectives such as price stability and maximum employment.

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As indicated in the attached image, U.S. earnings for high- and low-skill workers as measured by educational attainment began diverging in the 1980s. The remaining questions in this problem set use the model for the labor market developed in class to walk through potential explanations for this trend. 1. Assume that there are just two types of workers, low- and high-skill. As a result, there are two labor markets: supply and demand for low-skill workers and supply and demand for high-skill workers. Using two carefully drawn labor-market figures, show that an increase in the demand for high skill workers can explain an increase in the relative wage of high-skill workers. 2. Using the same assumptions as in the previous question, use two carefully drawn labor-market figures to show that an increase in the supply of low-skill workers can explain an increase in the relative wage of high-skill workers.

Answer 2

Question

Chapter 31, Problem 1SPA

To determine

Explain the given statement and identify why the primary goal of Fed is price stability.

Expert Solution & Answer

Explanation of Solution

The monetary policies of the Fed always are set to achieve its basic primary goals of maximum employment, stable prices, and moderate long-term interest rates, in which, the price stability is treated as the primary goal. The reason is that this primary goal directly meets the second goal and indirectly meets the remaining two goals of Fed. Because when an economy achieves price stability, it indicates that the inflation rate is low. A lower price level will help to maintain the long-term interest rate. On the contrary, when the price level is stable, consumers and investors will be more interested to increase the expenditure. As a result, the unemployment rate will close the natural rate of unemployment. Hence, the Fed always sets the price stability as a primary policy goal to meet its objectives.

Economics Concept Introduction

Monetary policy: The monetary policies are the policies taken by the central bank to chase its objectives such as price stability and maximum employment.

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Answer 3

Question

Chapter 31, Problem 1SPA

To determine

Explain the given statement and identify why the primary goal of Fed is price stability.

Expert Solution & Answer

Explanation of Solution

The monetary policies of the Fed always are set to achieve its basic primary goals of maximum employment, stable prices, and moderate long-term interest rates, in which, the price stability is treated as the primary goal. The reason is that this primary goal directly meets the second goal and indirectly meets the remaining two goals of Fed. Because when an economy achieves price stability, it indicates that the inflation rate is low. A lower price level will help to maintain the long-term interest rate. On the contrary, when the price level is stable, consumers and investors will be more interested to increase the expenditure. As a result, the unemployment rate will close the natural rate of unemployment. Hence, the Fed always sets the price stability as a primary policy goal to meet its objectives.

Economics Concept Introduction

Monetary policy: The monetary policies are the policies taken by the central bank to chase its objectives such as price stability and maximum employment.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 31, Problem 1SPA

To determine

Explain the given statement and identify why the primary goal of Fed is price stability.

Expert Solution & Answer

Explanation of Solution

The monetary policies of the Fed always are set to achieve its basic primary goals of maximum employment, stable prices, and moderate long-term interest rates, in which, the price stability is treated as the primary goal. The reason is that this primary goal directly meets the second goal and indirectly meets the remaining two goals of Fed. Because when an economy achieves price stability, it indicates that the inflation rate is low. A lower price level will help to maintain the long-term interest rate. On the contrary, when the price level is stable, consumers and investors will be more interested to increase the expenditure. As a result, the unemployment rate will close the natural rate of unemployment. Hence, the Fed always sets the price stability as a primary policy goal to meet its objectives.

Economics Concept Introduction

Monetary policy: The monetary policies are the policies taken by the central bank to chase its objectives such as price stability and maximum employment.

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Answer 5

Chapter 31, Problem 1SPA

To determine

Explain the given statement and identify why the primary goal of Fed is price stability.

Expert Solution & Answer

Explanation of Solution

The monetary policies of the Fed always are set to achieve its basic primary goals of maximum employment, stable prices, and moderate long-term interest rates, in which, the price stability is treated as the primary goal. The reason is that this primary goal directly meets the second goal and indirectly meets the remaining two goals of Fed. Because when an economy achieves price stability, it indicates that the inflation rate is low. A lower price level will help to maintain the long-term interest rate. On the contrary, when the price level is stable, consumers and investors will be more interested to increase the expenditure. As a result, the unemployment rate will close the natural rate of unemployment. Hence, the Fed always sets the price stability as a primary policy goal to meet its objectives.

Economics Concept Introduction

Monetary policy: The monetary policies are the policies taken by the central bank to chase its objectives such as price stability and maximum employment.

Answer 6

Chapter 31, Problem 1SPA

To determine

Explain the given statement and identify why the primary goal of Fed is price stability.

Expert Solution & Answer

Explanation of Solution

The monetary policies of the Fed always are set to achieve its basic primary goals of maximum employment, stable prices, and moderate long-term interest rates, in which, the price stability is treated as the primary goal. The reason is that this primary goal directly meets the second goal and indirectly meets the remaining two goals of Fed. Because when an economy achieves price stability, it indicates that the inflation rate is low. A lower price level will help to maintain the long-term interest rate. On the contrary, when the price level is stable, consumers and investors will be more interested to increase the expenditure. As a result, the unemployment rate will close the natural rate of unemployment. Hence, the Fed always sets the price stability as a primary policy goal to meet its objectives.

Economics Concept Introduction

Monetary policy: The monetary policies are the policies taken by the central bank to chase its objectives such as price stability and maximum employment.

Answer 7

Chapter 31, Problem 1SPA

To determine

Explain the given statement and identify why the primary goal of Fed is price stability.

Answer 8

Expert Solution & Answer

Explanation of Solution

The monetary policies of the Fed always are set to achieve its basic primary goals of maximum employment, stable prices, and moderate long-term interest rates, in which, the price stability is treated as the primary goal. The reason is that this primary goal directly meets the second goal and indirectly meets the remaining two goals of Fed. Because when an economy achieves price stability, it indicates that the inflation rate is low. A lower price level will help to maintain the long-term interest rate. On the contrary, when the price level is stable, consumers and investors will be more interested to increase the expenditure. As a result, the unemployment rate will close the natural rate of unemployment. Hence, the Fed always sets the price stability as a primary policy goal to meet its objectives.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Economics Concept Introduction

Monetary policy: The monetary policies are the policies taken by the central bank to chase its objectives such as price stability and maximum employment.

Answer 12

Ch. 31.1 - Prob. 1RQ Ch. 31.1 - Prob. 2RQ Ch. 31.1 - Prob. 3RQ Ch. 31.1 - Prob. 4RQ Ch. 31.2 - Prob. 1RQ Ch. 31.2 - Prob. 2RQ Ch. 31.2 - Prob. 3RQ Ch. 31.3 - Prob. 1RQ Ch. 31.3 - Prob. 2RQ Ch. 31.3 - Prob. 3RQ

Explain the given statement and identify why the primary goal of Fed is price stability.

Explain the given statement and identify why the primary goal of Fed is price stability.

Explanation of Solution

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Chapter 31 Solutions