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1. The growth rate of the money supply in a particular year was 8.5%. What was the growth rate of real GDP if the inflation rate in the same year was 4%? 2. During a recession, the Fed enacts countercyclical policy u

1. The growth rate of the money supply in a particular year was 8.5%. What was the growth rate of real GDP if the inflation rate in the same year was 4%? 2. During a recession, the Fed enacts countercyclical policy u

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Monetary System
Section: Chapter Questions
Problem 10PA
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1. The growth rate of the money supply in a particular year was 8.5%. What was the growth rate of real GDP if the inflation rate in the same year was 4%? 2. During a recession, the Fed enacts countercyclical policy, by changing the quantity of reserves. To fight recession, how will the Fed adjust the quantity of reserves in the market (to S₁ or S₂)? Explain how the Fed can operationalize that. Fed funds rate () S I 1 I I 1 T I 1 1 1 1 I || I I 1 1 1 1 So I I 1 1 I 1 I I 1 1 I 1 1 J I I 1 1 + I I I I 2 D Quantity of reserves 3. Explain why the zero lower bound is a problem for monetary policy. If there's a recession and the Central Bank is at a zero lower bound, what monetary policies can it pursue to stimulate the economy?
Transcribed Image Text:1. The growth rate of the money supply in a particular year was 8.5%. What was the growth rate of real GDP if the inflation rate in the same year was 4%? 2. During a recession, the Fed enacts countercyclical policy, by changing the quantity of reserves. To fight recession, how will the Fed adjust the quantity of reserves in the market (to S₁ or S₂)? Explain how the Fed can operationalize that. Fed funds rate () S I 1 I I 1 T I 1 1 1 1 I || I I 1 1 1 1 So I I 1 1 I 1 I I 1 1 I 1 1 J I I 1 1 + I I I I 2 D Quantity of reserves 3. Explain why the zero lower bound is a problem for monetary policy. If there's a recession and the Central Bank is at a zero lower bound, what monetary policies can it pursue to stimulate the economy?
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