3. Now, Assume that Peruvian government responds by using monetary policy to stabilize output after a shock. For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock and the policy response. For each case, state the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I, TB. a. Peru's main trading partner, China, enters into a recession. China's output decreases. b. Investors expect a depreciation of the Sol, the Peruvian currency. c. The money supply in Peru increases. d. Peruvian government increases government spending.
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- Now, Assume that Peruvian government responds by using monetary policy to stabilize output after a shock. For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock and the policy response.For each case, state the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I, TB. a. Peru's main trading partner, China, enters into a recession. China's output decreases. b. Investors expect a depreciation of the Sol, the Peruvian currency. c. The money supply in Peru increases. d. Peruvian government increases government spending. answer only D part Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.Suppose two countries have identical aggregate demandcurves and potential levels of output, and g is the samein both countries. Assume that in 2019, both countriesare hit with the same negative supply shock. Given thetable of values below for inflation in each country, whatcan you say, if anything, about the credibility of eachcountry’s central bank? Explain your answer.Country A Country B2018 3.0% 3.0%2019 3.8% 5.5%2020 3.5% 5.0%2021 3.2% 4.3%2022 3.0% 3.8%How does high inflation lead to a recession in the country? Explain the role ofthe Government and the Central Bank to address the economic recessionproblem by using appropriate fiscal and monetary policies. Are there anypotential problems with such policies? Please answer in detail
- Case : Dealing with Asymmetric Shocks in the EurozoneMember countries of the Eurozone are currently hit by the Covid-19 pandemic, though somecountries are hit harder than others as can be seen from the recent projections of the IMF,here shown for Germany and Italy as an example, in the figure below. Question 1 Explain what is meant by an asymmetric shock and discuss the role of monetary, fiscal andincome policies could play to deal with such a shock for a Eurozone member country.On the topic of "Stabilization Policies, Monetary Institutions and Strategies" Suppose that it there is an expected increase in the production productivity. Using AE/PC Model, explain the followings with the aid of graphs. a) What will be the impact on current inflation and on output if the central bank does not involve to the market (do nothing)? b) Assume that initially inflation equals to the central bank’s inflation target and an output gap of zero. When the shock occurs, what are the options that the central bank has to influence to the market?Assume that two shocks happen simultaneously: a positive expenditure shock (let’s say a popular trend is to go for a bigger house) and a positive supply shock (let’s say prices on imported inputs decreased dramatically due to a substantial reduction in tariffs). Use AE/PC Model (carefully labeled!!) without time lags (use the AE and PC graphs similarly to the textbook, place PC graph below AE graph). For your analysis, choose as a starting point (marked A) an economy operating at potential GDP (Y=Y*) and at its inflation target (? = ?#). Also, show point B where the economy is situated after the shocks but prior to any central bank policy response. There should be A and B on BOTH the upper (AE graph) and lower (PC graph) graphs. If points A and B are the same point, then just mark that point with both A and B. Mark initial curves with the superscript 1, like AE1 and PC1, and every subsequent shift with a higher number, like the second shift would be AE2 and PC2, and the third shift (if…
- Which monetary policy tool can the Federal Reserve use to conduct an expansionary monetarypolicy (please state at least one instrument)? Which monetary policy instrument can the Fed useto conduct a restrictive monetary policy? Assume the country is experiencing highunemployment and a recession, such as during 2001, 2008-2009, and 2020. What is the Fedlikely to do in this scenario? Discuss the effects of such policy on the economy. Can you givea specific example to what the Fed did during any of those recessions? This is not a writing, it is economic.Draw an IS-LM model in general equilibrium. Show the effect of expansionary monetary policy, and then explain what adjustment will happenin a Keynesian version of the model. Did this policy accomplish anythingwith regards to GDP growth? Explain the trade-off for this policy in theKeynesian version.True-False with explanationA monetary expansion only changes inflation on the long run
- Suppose country A has a central bank with full credibility, and country B has a central bank with no credibility. Assume that in 2020, both countries are hit with the same COVID-19 shock. If the both central banks announce an autonomous easing policy to reduce the unemployment rate, a) How does the credibility of each country’s central bank affect the speed of adjustment of the aggregate supply curve to policy announcements?Suppose the economy is initially at full employment. Suppose further that in period 1 households experience an increase in their subjective discount factor from β to β′ > β. This type of shock is known as a natural rate shock. Characterize graphically the effect in period 1 on consumption of non-tradables, unemployment, the relative price of non-tradables, and the real wage measured in units of tradable goods under two alternative monetary policy regimes: A. A fixed exchange rate regime. B. A floating exchange rate regime in which the central bank pursues full employment and price stability.How does high inflation lead to a recession in the country? Explain the role ofthe Government and the Central Bank to address the economic recessionproblem by using appropriate fiscal and monetary policies. Are there anypotential problems with such policies?( Answer in 1000 words)