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- E1 Suppose the Central Bank of Bothnia buys Treasury Bonds. What will be the impact on the price level and real GDP in the country of Bothnia? Would the purchase of treasury bonds be considered expansionary or contractionary policy AND would this be fiscal or monetary policy?Assume that the current interest rate is 4.0% and the economy is in a mild recession somewhat below YN. Using the model of Liquidity Preference, illustrate with a graph and short explanation how that equilibrium rate of 4.0% is determined. Now, assume the next move by the Fed at its December meeting is to raise the target rate of interest by 50 basis points out of a fear of future inflation. Illustrate this contractionary monetary policy graphically, first through liquidity preference, and then via IS-LM. Could this contractionary move by the Fed result in full employment? Why or why not?1-Suppose the economy is in recession and the monetary policymakers lower interest rates in an effort tostabilize the economy.Use an aggregate supply and demand diagram to demonstrate the effects of a monetary easing when thetransmission mechanisms are functioning normally and when the transmission mechanisms are weak, suchas during a deep downturn or when significant financial frictions are present.
- 14) During a period when economic growth is very strong and inflation rates are rising to uncomfortable levels, Federal Reserve policymakers might decide to pursue which type of monetary policy? 15) Which of the following pairs of terms is used to describe fluctuations in the economy? 16) During a contractionary phase of the business cycle which of the following most likely occurs? 17) Which of the following regulations prevent price gouging? 18) what does fiscal policy include?6. Monetary policy in the long run Consider a hypothetical economy that produces at its long-run macroeconomic equilibrium at a price level of 100. Suppose that the central bank in this economy is expanding the money supply by 4% each year. In order for the price level to be maintained at 100, real GDP must grow at an annual rate of (percentage?) if the velocity of money remains constant. Suppose the central bank enacts an unanticipated restrictive monetary policy. As a result, the supply of loanable funds (decreases/ Increase) , leading to a (rise/fall) in short-term interest rates. This in turn (reduces/raises) the opportunity cost of holding money. As people hold (Lower/ higher) money balances, the (velocity of money/ Price level/ aggregate output) will (rise/fall). True or false?: The shift in monetary policy exerts an impact on output and the general level of prices with a time lag. 6. Monetary policy in the long run Consider a hypothetical economy that produces at its…1. Suppose the IS curve is Y = 3945-100i and Y = 1500 + 250i is the LM curve. Using these compute: a) The equilibrium interest rate and output (i*and Y*). b) If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate. d) Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (b) above. Suppose di/dMs = -0.15. e) Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually).
- 1) Derive the ISLM model and explain how general equilibrium in the goods and money markets is determined. 2) Explain the effect of contractionary monetary policy in the ISLM model when investment demand is very interest rate elastic using a diagram. 3) Explain the difference of the effect of contractionary fiscal policy between the Keynesian aggregate expenditure model and the ISLM model when the central bank is not targeting an interest rate. 4) Explain under which conditions for the LM schedule, expansionary fiscal policy is most effective in increasing output using a diagram.4. Summarize the fiscal policy responses to the 2008 financial crisis and the 2020 pandemic. Explain howthey are similar and how they differ. Evaluate the extent to which the fiscal responses have been successful(or not) in both crises, providing evidence or economic arguments to support your views. What would youhave done differently? Explain your answers thoroughly. 5. Summarize the monetary policy responses to the 2008 financial crisis and the 2020 pandemic. Explainhow they are similar and how they differ. Evaluate the extent to which monetary policy has been successful(or not) in both crises, providing evidence or economic arguments to support your views. What would youhave done differently? Explain your answers thoroughly. Please answer all! I need to check my work!1. If there is no speculative element in the Money Demand Function, while the other functions remain in a normal state, then find the function of the monetary sector and what the shape of the monetary sector curve looks like. 2. In connection with the macroeconomic situation as illustrated in problem number (1) above, using a three-sector economic analysis tool (real sector, monetary sector, and resource sector), present your answer about the relevance and significance of the Social Assistance Program Covid-19. 3. Using a four-sector economic analysis tool, present your answer separately about the relevance and impact of each of the following macroeconomic policies: (a) PAKTO ‘88(Easy / Expansionary Money Policy); (b) Increased Real Sector (Expansionary Fiscal)Policy).
- 7-) If the money demand function is unstable and undergoes substantial, unpredictable changes, then the level of interest rates set by the central banks will provide more information about the stance of monetary policythan will the money supply. Is this statement true, false, or uncertain? Explain your answer. (ANSWERS that only state “True”, “False”, “Uncertain”)please explain each question 1. What effect a selling bond will have on the money market? Explain using bond prices. 2. Assume that fiscal policy can be accomplished by changing only one of G and T. In the IS-LM framework, suppose the effect on the general equilibrium output is the same between expansionary fiscal policy and expansionary monetary policy. Which one would you expect to have a greater impact on the equilibrium consumption? Explain in words. Hint: Monetary policy affects also affects Y in the IS-LM framework!Suppose that the current money market equilibrium features an interest rate of 5 percent anda quantity of $2 trillion. If the Fed raises the discount rate, which of the following is mostlikely to be the new money market equilibrium? Group of answer choices An interest rate of 4 percent and a quantity of $2.5 trillion. An interest rate of 6 percent and a quantity of $1.5 trillion. An interest rate of 3 percent and a quantity of $3 trillion. An interest rate of 5 percent and a quantity of $2 trillio