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- 12 Assume that the Saudi economy is in a recession and SAMA decides to implement an expansionary monetary policy. Use appropriately labeled graphs to trace the impact of an expansionary monetary policy on the: the money market, market for loanable funds aggregate goods marketP4 3. Using the AA-DD model, explain: (a) why a temporary increase in the money supply raises output and the ex change rate; (b) why the effects of a permanent increase in the money supply are different from (a)II. Short Answer A. Create a graph of equilibrium in the IS-LM model. Show the effect of an expansionary monetary policy. Summarize your results.
- Explain how the slope of LM curve affect the outcome of expansionary monetary policy (increase in money supply) with the diagram.3)Using short-hand symbols, explain the effects of a contractionary monetary policy.2)By using graphs, show and explain how an increase in money supply can affect the goods market by taking thelink between two markets into account.1)Show and explain the derivation of AD curve by taking the link between the money market and the goods marketinto account4. When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following a) a quantitative easing policy. b) a expansionary monetary policy. c) a contractionary monetary policy. d) a loose monetary policy.
- Explain how the slope of IS curve affect the outcome of expansionary monetary policy (increase in money supply) with the diagram.10. Suppose that the equilibrium real federal funds rate is 2.5% and the target inflation rateis 2.5%. If the current inflation is 6.25% and the output gap is -2.3%, use the Taylorrule to find the federal funds rate that the Fed should choose. Show your work.N3 Give three reasons why a central bank may consider output to be a better target than inflation.
- The central bank of st. vincent and the grenadines decides to pursue acontractionary monetary policy. Provide a table with the money supply data and inflation rate for st. vincent and the grenadines for 2014 - 2019. (c) Based on the data from st. vincent and the grenadines, do you agree with the central bank’s decision to pursue a contractionary monetary policy? Explain why or why not. (d) Identify a newspaper article from st. vincent and the grenadines that provides a situation in which a contractionary monetary policy was implemented by the central bank. Ensure that you provide a screenshot of the article in your submission. The screenshot should include the name of the publication, date of publication and name of the article.(i) Identify the contractionary monetary policy used in the article. (ii) Carefully explain, in as much detail as possible, how the chosen action from the article will impact the money market. (iii) Illustrate using the money market diagram, the overall impact…4. In the IS-LM framework, all others remain the same, the decline in investment spending is illustrated by the movement of the __________ curve to __________. a. IS; left b. LM; left c. LM; right d. IS; right 5. Monetary policy will have a large impact on output if ___________. a. the LM curve is horizontal b. the IS curve is horizontal c. the LM curve is steep d. the IS curve is steep 6. The interest rate paid by a commercial bank when borrowing from a central bank is known as __________. a. currency rates b. discount rate c. overnight policy rate d. base rate/base lending rate6 Use the IS-LM model to predict the short run effects of each of the following events. (i) An increase in the reserve requirement of commercial banks. (ii) Consumers decide to save more out of their disposable incomes.