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- Are the outcomes of the Fed's actions precise and predictable? The Fed's actions are _______ because _______. A. precise; the time lags in the adjustment process are predictable B. predictable but not precise; the economy does not always respond in exactly the same way to a given policy C. precise; the ripple effects of its actions are well known D. predictable; it is unusual for other factors to influence the outcomeAs monetary policymakers become more concernedwith inflation stabilization, the slope of the aggregatedemand curve becomes flatter. How does the resulting change in the slope of the aggregate demand curvehelp stabilize inflation when the economy is hit with atemporary negative supply shock? How does this affectoutput? Use a graph of aggregate demand and supply todemonstrate.Assume that an economy is initially at the natural rate of unemployment.a. Use a Phillips curve diagram to illustrate graphically how the inflation rate andunemployment rate change both in the short run and in the long run to anunexpected expansionary monetary policy.b. Use a Phillips curve diagram to illustrate graphically how the inflation rate andunemployment rate change both in the short run and in the long run to theannouncement of a credible plan of expansionary monetary policy whenpeople have rational expectations.
- The following graph illustrates long-run and short-run Phillips curves for an economy that is currently at point A. Long-Run Phillips Curve SRPC, SRPC SRPC Unemplayment Rate To reduce inflation, the Fed uses contractionary policy. In the short run, the economy moves from point A to point E In the long run, the economy will move to point This illustrates that the benefits v of reducing inflation are temporary and the costs of reducing inflation are permanent. Inflation RateSuppose that the central bank has the policy "set R equal to 3 if inflation equals 2% and GAP = 0. Raise R by 0.5 points for every point of inflation above 2%. Reduce R by 0.5 points for every point that inflation falls shortof 2%. Increase R by 1 point for every percentage point of GAP, if GAP > 0. Reduce R by 1 point for every percentage point of GAP, if GAP < 0." All but one of the following is an equation that is consistent with this rule. Which is the exception? OR-3+0.5( - 2) + GAP OF-2+1.5n + GAP OF- 3+0.5(n - 2) + GAP + n R-2+n+ GAPHow do you know if the Fed's actions achieve the goal of stable prices? The goal of stable prices is achieved when _______. A. the prices of food, clothing, and shelter are stable B. the PCEPI inflation rate excluding food and energy prices is 2 percent a year C. the general level of prices is changing, but we can accurately predict the rate of change D. the inflation rate is zero percent a year
- Determine how each of the following monetary or fiscal policy would shift the aggregate demand curve. Illustrate and explain the following effect. a. Assuming the economy is under full employment, the central bank receives news of a potential economic boom and has decided on a risky measure by conducting contractionary monetary policy. Illustrate and explain the effect of the policy using AD-AS curve.Question 6 If the economy were represented by the following graph, what is the appropriate monetary policy? Price Level LRAS SRAS El P1 AD Real GDP Y1 Yp buy government bonds from commercial banks, thereby lowering interest rates and increasing aggregate demand. Ob sell government bonds to commercial banks, thereby lowering interest rates and increasing aggregate demand buy government bonds from commercial banks, thereby increasing interest rates and decreasing aggregate demand O d) sell government bonds to commerical banks, thereby increasing interest rates and decreasing aggregate demand.A. What assumptions did Thomas Sargent make when he claimed that inflation is always and everywhere a fiscal phenomenon?" B. Why is it appropriate in the book's short-term model for the author to use the Phillips Curve as an Aggregate Supply curve? Does it capture the working of the labor market as well as an AS curve based, say, on sticky wages? C. Provide an example of the book's short-run model being based on "microfoundations."
- The economy of Djibulistan is initially in long-run equilibrium. Then the CentralBank of Djibulistan increases the money supply.a. Assuming unexpected inflation as a result of the above-mentioned policy,explain any changes in output, unemployment, and inflation that arecaused by the monetary expansion. Explain your answer and conclusionsusing three graphs: IS-LM, AD-AS, and the Phillips curve. b. Assuming instead that resulting, inflation is expected, explain any changesin output, unemployment, and inflation that are caused by the monetaryexpansion. Explain your answer and conclusions using three graphs: ISLM, AD-AS, and the Phillips curve.A movement to the right along a given short-run Phillips curve could be caused by a. contractionary monetary policy, but not an increase in the natural rate of unemployment. b. expansionary monetary policy, but not an increase in the natural rate of unemployment. c. an increase in the natural rate of unemployment or a contractionary monetary policy. d. an increase in the natural rate of unemployment or expansionary monetary policy.Which is of the following is not a belief of monetarists? a.In the long-run, inflation is always a monetary phenomenon b.In the short-run, Fiscal policy is a better instrument of stabilization policy than monetary policy c.In the short-run, velocity is stable d.In the long-run, a ten percent increase in the money supply results in a ten percent increase in prices Early Keynesian thinks that money is less important because a.High interest elasticity of investment b.People have less incentive to buy bonds c.Fiscal Policy is more effective as it is determined by the politicians d.High interest elasticity of money demand If a country’s policy makers were to continuously use expansionary monetary policy in an attempt to hold unemployment below the natural rate the long-run result would be? a.All of these answers b.A decrease in the unemployment rate c.An increase in the level of output d.An increase in the rate of inflation The original Phillips curve…
