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- Time remaining: 00 :09 :06 Economics If there is an inflationary gap, what should the Fed do? Explain, provide name, and show in i-M space. Consider the following macroeconomy, with fixed prices (all amounts are in millions of $): YFE = 7000 C = 40 + 0.9 YD I = 500 G = 250 T = 40 a. Calculate eqm Y in this model and then graph it in the Keynesian-cross diagram. Indicate and provide the name and size of the gap, if any. b. Prove that the appropriate relationship between I and various types of Savings holds at eqm. c. What two different policies could Congress enact? You must calculate the exact changes in the appropriate variables and provide the appropriate name(s) for the(se) policies. Graph each of these policies in the Keynesian-cross diagram. Show what your policies would do, if anything, in the money-market diagram, (in i- M space) cet. par. Indicate the initial disequilibrium and explain what will happen and why. d. Go back to the original eqm in part a. Now…The graph shows the aggregate demand curve and the short-run aggregate supply curve in Artica Potential GDP i Intialy $300 Bilion. A drought decreases potential GDP to 1250 bilon. Draw the new Potenal GDP Ine. Label it. Draw a curve to show what happens if the central bank lowers the federal funds rate. Label the curve. Draw a point at the new equilbrum price level and real GOP Label 1. Now starting trom the original equibrium, draw a curve to show what happens if the central bank raises the federal unds rate Label the curve. Drawa point at the hew equilbrium price level and real GOP, Label it 2. To retum the economy to polental GOP, he central bank should _________ the federal tunde rate O A. Raise O B. lower(c). Consider an economy that starts out in steady state when the central bank decides to make the inflation target more ambitious. Analyse the effects of a decrease in the inflation target from ? to ??. Explain the mechanisms behind the adjustment to the new steady state.
- How 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 thanks sUse the 3-equation model diagrams to show how the economy can fall into a deflation trap. Explain, with reference to the diagram, how the central bank/government can intervene toescape the trap?How 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
- first image is just the resource. second image has the questions 6,7 and 8 * also note This economy’s central bank follows agiven Monetary Policy Rule: r = i = 0.025 × Y + 0.0003 × P , where P is the pricelevel.Explain, with the aid of a graph, the demand‐pull inflation. In your answer, consider the following: Graphical illustration of the demand‐pull inflation Provide any three of your own examples/scenario that might cause the demand‐pullinflation Recommend the policy tools to use in order to curb each type of inflation mentionedabovea. The response of Central Bank to shocks depends on its goal. Suppose Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output and employmentat their natural levels. Explain with the help of graph how each Central Bank would respond to the following. i. An exogenous decrease in the velocity of money. ii. An exogenous increase in the price of oil.
- Old MathJax webview Assume the public have rational expectations. According to the model, which policy is better: A monetary authority bound by rules or discretion? Assume the public have rational expectations. According to the model, which policy is better: a monetary authority bound by rules or discretion? For my equilibrium rate of inflation my answer was 0. For my equilibrium rate of output I got 2.5.Asap plz Assuming the economy has a strong-form market and that the current economy has reached its long-term equilibrium with optimal inflation rate π = 3 (%) and the aggregate output y = 10 (£bil). The economy has the following AD-AS curves: I. AD Curve: π = 10-0.7y II. AS Curve: π = 1+0.2y III. LRAS Curve: y = 10 Now, the central bank intends to use monetary policy to boost economic growth and suggest the government to increase £1bil in government expense. You are a researcher and now reviewing effect increased expense. a. What is the short-term equilibrium of π and y? b. What is the long-term equilibrium of π and y? c. What is the new AS curve? Do you think central bank’s suggestion on monetary policy effective?What happens when a central bank pursues inflation targeting? A. The policy actions that central banks use to achieve the inflation target are kept secret. B. With inflation targeting, the United States would be more successful at achieving low and stable inflation. C. Many central banks achieve their inflation target at the expense of extremely high unemployment. D. The bank announces an explicit inflation target and the public is confident the bank's policy will achieve that target. thanks
