Principles of Economics (Second Edition)
2nd Edition
ISBN: 9780393614077
Author: coppock, Lee; Mateer, Dirk
Publisher: W. W. Norton & Company
expand_more
expand_more
format_list_bulleted
Question
Chapter 31, Problem 2QFR
To determine
(a)
To explain:
Effect on interest rate due to contractionary
To determine
(b)
To explain:
Effect of monetary policy on interest rate due to changes in aggregate demand and
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
During the third quarter of 1997, Japanese GDP was falling at an annual rate of over 11 percent. Many blamed the big increase in Japan's taxes in the spring of 1997, which was designed to balance the budget.
a. Explain how an increase in taxes with the economy growing slowly could cause a recession.
b. If you were head of the Japanese central bank (the same as our FED), how would you respond? What impact would your policy have on the level of investment?
For each of the following economic changes, predict what will happen to equilibrium
interest rate and quantity of money in the financial market. Sketch a demand and supply
diagram to support your answers.
Banks that have made loans find that a larger number of people than they expected
are not repaying those loans.
2.Because of the pandemic, people become uncertain about their economic future.
3. BSP buys dollars from the public to increase its foreign exchange reserves.
When the United States economy goes through a period of extended growth, the economy is said to be heating up! Unemployment is low and companies are increasing workers’ wages above the national minimum wage. The Federal Reserve (FED) is concerned that these wage increases will result in inflation; higher prices throughout the economy. What can the FED do?
Chapter 31 Solutions
Principles of Economics (Second Edition)
Knowledge Booster
Similar questions
- Discuss the concept of "monetary policy". Explain the types of monetary policies and the means to affect them.arrow_forwardWhat happens when an economy was initially in full employment, following a strongly expansionary monetary or budgetary policy?arrow_forwardthe government of a country increases the growth rate of the money supply from 5 percent per year to 50 percent per year. what happened to prices?arrow_forward
- What does the term monetary policy primarily refer to in economics? A. Government spending and taxation B. The regulation of international trade C. The control of the money supply and interest rates by a central bank D. The management of government debtarrow_forward“Monetary policy is the macroeconomic policy laid down by the central bank of an economy.”In terms of the above statement, explain how monetary policy can be used to combat inflationarrow_forwardThe central bank decided to raise interest rates when it wanted to reduce aggregate demand to fight inflation. How does an increase in interest rates reduce aggregate demand?arrow_forward
- In 1989 the Government made it legal for banks to offer interest on checking accounts. Before this it was illegal because it could create increased competitiveness between banks and maybe lead to bank failures. Using only the asset market show graphically what we would expect to happen to the quantity of money and the interest rates if it became legal for banks to offer interest bearing checking accounts. What would this do to the overall economy? Why? How would the Federal Reserve (using information from class) stabilize the economy?arrow_forwardIn the 1970's in the U.S., what happened to inflation and unemployment? What caused this to happen? The 80's and 90's brought about more stability in world economic systems. Explain the change in central banks that contributed to this effect. What happened to interest rates after the financial crisis of 2008? Was that result expected? What are the dangers of having an inflation rate that's too low? Should central banks be independent of the federal government? Why or why not?arrow_forwardUsing the macroeconomic environment where banks sources its inputs and to which it sells its outputs. Relate this to both the domestic market and the foreign sector.arrow_forward
- What causes Monetary base and Monetary supply to increase?arrow_forward1. You are the economics editor of the local newspaper. You have just received the following news items: "Congress has just adopted a new budget calling for tax cuts and a $50 billion deficit." "The FRS has just announced an increase in the discount rate, a signal that tight monetary policy is in the offing." Write a brief news story describing how these policies will likely affect inflation and unemployment in the short term and in the long run. 2. Should the FRS remain independent? Take a side and defend your choice.arrow_forwardWhich of the following is true of monetary policy? a. If the Fed wants to increase the money supply, it should increase the interest rate it pays banks on their reserves. b. The long and variable lags between a shift in monetary policy and when the policy shift affects output and employment makes it easier for the Fed to time monetary policy properly. c. A monetary policy that maintains price stability provides the foundation for both economic stability and the smooth operation of a market economy. d. The Fed should try to push real interest rates to the lowest possible level in order to stimulate investment and aggregate demand.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning