PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Question
Chapter 15, Problem 15.3CC
(a)
To determine
Impact of the upward shift in reaction function of the policy on the AD curve.
(b)
To determine
Impact on AD curve when the Fed responds to a higher rate of inflation.
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Students have asked these similar questions
How does an autonomous tightening or easing ofmonetary policy by the Fed affect the aggregate demandcurve?
Figure 2: Keynes’s AD-AS Model
Economics Online. (n.d.). Aggregate supply. Retrieved from http://www.economicsonline.co.uk/Managing_the_economy/Aggregate+supply.html
2.1. In Figure 2 above, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand pull inflation, cost push inflation and recession?
We often say that responding to a negative AD shock
is the easiest scenario for the Fed to respond to.
However, even the response to a negative AD shock
might be difficult, and it's often impossible for the
Fed to increase AD the exact amount necessary to
offset the shock. Why is that? In other words, why is it
easy for the Fed to overshoot or undershoot their
stimulus? Explain.
Chapter 15 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
Ch. 15.A - Prob. 15A.1CCCh. 15 - Prob. 1RQCh. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - Prob. 4RQCh. 15 - Prob. 5RQCh. 15 - Prob. 6RQCh. 15 - Prob. 7RQCh. 15 - Why, in the absence of public beliefs that the...Ch. 15 - Prob. 9RQ
Ch. 15 - Prob. 10RQCh. 15 - Prob. 1PCh. 15 - For the economy in Problem 1, suppose that...Ch. 15 - Prob. 3PCh. 15 - Prob. 4PCh. 15 - For each of the following, use an AD-AS diagram to...Ch. 15 - Prob. 6PCh. 15 - Suppose that a permanent increase in oil prices...Ch. 15 - An economy is initially in recession. Using the...Ch. 15 - Prob. 9PCh. 15 - Prob. 10PCh. 15 - Prob. 11PCh. 15 - Prob. 15.1CCCh. 15 - Prob. 15.2CCCh. 15 - Prob. 15.3CCCh. 15 - Prob. 15.4CCCh. 15 - Prob. 15.5CCCh. 15 - Prob. 15.6CCCh. 15 - Prob. 15.7CCCh. 15 - Prob. 15.8CCCh. 15 - Prob. 15.9CCCh. 15 - Prob. 15.10CC
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Similar questions
- Suppose velocity rises and the money supply falls: How will things change in the AD-AS framework if a change in the money supply is completely offset by a change in velocity? The fall in velocity could shift the AD curve to the right by the same amount as the increase in the money supply shifts the AD curve to the left. The increase in velocity could shift the AD curve to the right by the same amount as the fall in the money supply shifts the AD curve to the left. A change in the money supply would decrease Real GDP, the short-run price level, and the long-run price level. The fall in velocity would shift the AD curve to the left by the same amount as the increase in the money supply shifts the AD curve to the right.arrow_forwardWhat effect will a successful supply-side policy have on the aggregate demand curve? A) Leftward shift B) Rightward shift C) Movement down along D) Movement up alongarrow_forwardWhich of the following does not cause the aggregate demand curve to shift to the right? A) A tightening monetary policy. B) An investment boom C) An expansionary fiscal policy D) An expansionary monetary policyarrow_forward
- Suppose velocity rises and the money supply falls. How will things change in the AD–AS framework if a change in the money supply is completely offset by a change in velocity? Check all that apply. The increase in velocity could shift the AD curve to the left by the same amount as the fall in the money supply shifts the AD curve to the right. Changes in the money supply would have no effect on Real GDP, the short-run price level, nor the long-run price level. A change in the money supply would decrease Real GDP, the short-run price level, and the long-run price level. The increase in velocity could shift the AD curve to the right by the same amount as the fall in the money supply shifts the AD curve to the left.arrow_forward“Policymakers would never respond by stabilizing output in response to a temporary positive supply shock.”Is this statement true, false, or uncertain? Explain youranswerarrow_forwardConsider a standard AD-AS model. If the central bank responds relatively aggressively to inflation being below target, temporary supply shocks have relatively little effect on output. True/False. Remember to include your explanation.arrow_forward
- Why do temporary negative supply shocks pose adilemma for policymakers?arrow_forwardDuring a 2008 interview, then German Finance Minister Peer Steinbrueck said, "We have to watch out that in Europe and beyond, nothing like a combination of downward economic [growth] and high inflation rates emerges-something that experts call stagflation." Such a situation can be depicted by the movement of the short-run aggregate supply curve from its original position, SRAS,, to its new position, SRAS2, with the new equilibrium point E2 in the accompanying figure. In this question, we try to understand why stagflation is particularly hard to fix using fiscal policy.arrow_forwardIn Figure 2 above, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand-pull inflation, cost-push inflation and recession?arrow_forward
- E. 2. 4)During a 2008 interview, then German Finance Minister Peer Steinbrueck said, "We have to watch out that in Europe and beyond, nothing like a combination of downward economic [growth] and high inflation rates emerges-something that experts call stagflation." Such a situation can be depicted by the movement of the short-run aggregate supply curve from its original position, SRAS,, to its new position, SRAS2, with the new equilibrium point E2 in the accompanying figure. In this question, we try to understand why stagflation is particularly hard to fix using fiscal policy. Aggregate price level LRAS SRAS2 SRAS, AD1 Real GDP Recessionary gap a. What would be the appropriate fiscal policy response to this situation if the primary concern of the govern- ment was to maintain economic growth? Illustrate the effect of the policy on the equilibrium point and the aggregate price level using the diagram. b. What would be the appropriate fiscal policy response to this situation if the…arrow_forwardExplain, with the aid of a graph, the demand-pull inflation as a cause of inflation. (Outline the factors that cause the change in the AD curve)arrow_forwardExplain, with the aid of a graph, the demand-pull inflation as a cause of inflation. (Hint: Outline the factors that cause the change in the AD curve)arrow_forward
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