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ANSWER TRUE OR FALSE :
1- M1 and M2 equations are related to reserve market (interbank).
True / False
2- When there is a stable goods market (IS does not shift), the best target policy for central bank is interest rate targeting.
True / False
3- The foreign exchange crisis in August 2018 in Turkey showed us that the impossible trinity has not been held anymore.
True / False
4- Keynesian interest rates channel is not the one among monetary tranmission mechanisms.
True / False
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- Please Answer: 4- Keynesian interest rates channel is not the one among monetary tranmission mechanisms. True / FalseIf the COVID-19 recovery continues and inflation starts to rise, what effect would a decision by the Fed to not change the federal funds rate target range have on the U.S. economy? If the Fed decides to leave the federal funds rate target range unchanged, we would expect _______. A. deflation to occur and the unemployment rate to increase B. the recessionary gap to increase C. potential GDP to increase and the full-employment quantity of labor to increase D. inflation to increase and the unemployment rate to decrease Thanks!Consider two countries, Canada (Home) and US (Foreign). In 2018, Canada experienced relatively slow output growth (2%), whereas US had relatively robust output growth (4.2%). Suppose the Bank of Canada allowed the money supply to grow by 2% each year, whereas the Federal Reserve (Fed), the US central bank, chose to maintain relatively high money growth of 10% per year. For the following questions, use the simple monetary model (where I is constant).Consider the general monetary model, in which L is no longer assumed constant and money demand is inversely related to the nominal interest rate. In addition to the scenario described in the beginning of the question, the bank deposits in Canada pay 3% interest. Suppose the Fed increases the money growth rate from 10% to 12% and the inflation rate rises proportionately (one for one) with this increase. Using time series diagrams, illustrate how this increase in the money growth rate affects the US money supply, interest rate, prices, real…
- A Well-known economic model called the Philips Curve (discussed in the The Keynesian Perspective) describes the short run tradeoff typically observed between inflation and the unemployment. Based on expansionary and contractionary monetary policy, explain why one of these variable usually falls when the other risesDraw and properly label three graphs of money supply-money demand (in one graph), investment demand, and AD-AS (6%). Then, referring to the graphs in your explanation, use one of the three traditional monetary tools to explain how the monetary transmission mechanism works to close recessionary and also inflationary gaps. (9%)In today's interconnected world, many central banks communicate regularly and frequently with the public about the state of the economy, the economic outlook, and the likely future course of monetary policy. Communication about the likely future course of monetary policy is known as "forward guidance.". If the central bank increases the reserve ratio, as the market has perfectly expected, which of the following will surely happen? a. The short run economic output will be deviating from its potential output b. The prevailing price level of goods and services in that country will fall c. The level of potential output will be shifting to the left d. None of the following will happen for sure
- When there is a stable goods market (IS does not shift), what is the best target policy for central bank (interest rate targeting of monetary aggregates targeting)? When there is stable money market (LM does not shift) what is the best strategy of central bank in term of targeting? Explain with reasonsThe common traditional consensus among economists is that the central bank cannot target both interest rate and money supply at the same time. The central bank cannot choose to target both the non-borrowed reserves and the overnight rate policy instruments at the same time.a) Demonstrate graphically and in words the result of targeting on non-borrowed reserves.b) Demonstrate graphically and in words the result of targeting on the overnight rate.c) What are the three criteria that apply when choosing a policy instrument.The difference between the market monetarist 5-percent target for nominal GDP growth and the older, simpler monetary rule advocated by Milton Friedman is that the market monetarist 5-percent target for nominal GDP growth is Multiple Choice A. passive and countercyclical, whereas Friedman’s rule is active. B. active and procyclical, whereas Friedman’s rule is passive. C. active and countercyclical, whereas Friedman’s rule is passive. D. passive and procyclical, whereas Friedman’s rule is active.
- Consider the economy in two alternative situations, A and B . In A , the economy has an inflationary gap and the core inflation rate is 3 percent a year. In B , the economy has a recessionary gap and the core inflation rate is 1 percent a year. In which situation is the Fed likely to have the higher federal funds rate target range? Why? The Fed is likely to have the higher federal funds rate target range in situation _______ because the higher federal funds rate _______. A. B ; increases the recessionary gap and lowers the core inflation rate B. A ; increases the inflationary gap and lowers the core inflation rate C. A ; decreases the inflationary gap and lowers the core inflation rate D. B ; decreases the recessionary gap and lowers the core inflation ratePlease Answer: 2- When there is a stable goods market (IS does not shift), the best target policy for central bank is interest rate targeting. True or FalseWhen the link between M1, M2, and inflation broke down in the 1980s, many economists argued that the best policy approach was to have an explicit inflation target. The biggest problem with an explicit inflation target is a. that it requires perfect foresight on the part of the Federal Reserve because of the lagged impact of monetary policy instruments. b. determining which measure of inflation to use. c. that it puts too much emphasis on stable prices over other possible goals for monetary policy. d. determining what that target should be
