Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 35, Problem 4PA
Subpart (a):
To determine
Economy’s short-run and long-run Phillips curves.
Subpart (b):
To determine
Economy’s short-run and long-run Phillips curves.
Subpart (c):
To determine
Economy’s short-run and long-run Phillips curves.
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Principles of Economics, 7th Edition (MindTap Course List)
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- Suppose a central bank targets an inflation rate of 3%. She projects a long-termeconomic growth rate of 4%.a. Using the Classical Theories, suggest an appropriate long-term monetary policy.State the necessary assumptions. b. Suppose the new Chairman of the central bank will assume his duty next year.He is widely expected to be a “monetary hawk” – he favors a “tighter” growth inmoney supply.Other things being constant, how would this affect the expected inflation rate,nominal interest rate and the current general price level? Using relevant ClassicalTheories, briefly explain your answers.arrow_forwardIn the monetary intertemporal model, assume that money supply is always fixed. Suppose that there is an increase in real wage. How does this change affect interest rates (both real and nominal), price level, employment, total factor productivity and equilibrium output? Carefully explain your answers. b) Suppose that, in a liquidity trap, bank reserves are less liquid than government debt. If the Central Bank conducts an open market purchase of government debt, what is the effect on price level? Use an appropriate set of diagram to explain your answer.arrow_forwardThe long-run effects of monetary policy The following graphs plot the long-run equilibrium situation for an economy. The first graph plots the aggregate demand (AD) and long-run aggregate supply (LRAS) curves. The second graph plots the long-run and short-run Phillips curves (LRPC and SRPC, respectively). LRAS H AD 3 6 9 12 OUTPUT (Trillions of dollars) PRICE LEVEL 0 15 18 AD 441 LRASarrow_forward
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