An open market operation (OMO) resulted in the following change to a household balance sheet Assets -$100 worth of T-bills +$100 currency 0 Liabilities
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2. Create the T-entry for the Fed that goes together with the choice in the question above
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- The central bank of Trinidad and Tobago decides to pursue acontractionary monetary policy. Provide a table with the money supply data and inflationrate for Trinidad and Tobago for 2014 - 2019.Based on the data from Trinidad, do you agree with thecentral bank’s decision to pursue a contractionary monetary policy? Explain why orwhy not.Expansionary policies are designed to stimulate the economy byincreasing aggregate output. Explain why expansionary fiscalpolicy and expansionary monetary policy have opposite effectson the interest rate despite having the same goal of increasingaggregate output. Illustrate your answer with graphs of themoney market.. Assume that the monetary policy curve is given byr = 1.5 + 0.75p.a. Calculate the real interest rate when the inflation rateis 2%, 3%, and 4%.b. Draw a graph of the MP curve, labeling the pointsfrom part (a).c. Assume now that the monetary policy curve is givenby r = 2.5 + 0.75p. Does the new monetary policycurve represent an autonomous tightening or loosening of monetary policy?d. Calculate the real interest rate when the inflation rateis 2%, 3%, and 4%, and draw the new MP curve,showing the shift from part (b).
- 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?a) Which of the follwing monetary policy actions can be used to close an inflationary gap?O No change in the money supply to keep interest rates constant.ODecrease the money supply to decrease interest rates,OIncrease the money supply to increase interest rates.O Increase the money supply to decrease interest rates.O Decrease the money supply to increase interest rates. b) Assume the economy is initially at full-employment equilibrium. Suppose the economy slows down and uncertainty increases, reducing consumption and investment expenditures, in the short run, this shock willcause the economy to fall below full enployment. To move the economy to a full-employment equilibrium, the Fed could:O. decrease government spendingO. increase corporate tax ratesO. lower the federal fund rate targetO. increase government spending O. raise interest ratesd. Macroland implements a combination of expansionary fiscal and monetary policies. What will be the effect of these policies on each of the following?i. Aggregate demand in Macrolandii. The price level in Macroland iii. Explain the effects of expansionary fiscal policies on interest rates inMacroland.iv. Explain the effects of expansionary monetary policies on interest rates in Macroland.
- Price stability: Suppose you are the head of the central bank and your mandateis to maintain the price level at a constant value. Explain what you would doto the money supply in response to each of the following events:(a) Real GDP increases by 4% during a boom.(b) Real GDP declines by 1% during a recession.(c) Real GDP is growing at 3% per year.(d) Te velocity of money increases by 2%.(e) Te velocity of money declines by 1%.The central bank of the Dominican Republic decides to pursue acontractionary monetary policy. Provide a table with the money supply data and inflationrate for the Dominican Republic for 2014 - 2019.(c) Based on the data from the Dominican Republic, do you agree with thecentral bank’s decision to pursue a contractionary monetary policy? Explain why orwhy not. (d) Identify a newspaper article from the Dominican Republic that provides asituation in which a contractionary monetary policy was implemented by the centralbank. Ensure that you provide a screenshot of the article in your submission. Thescreenshot should include the name of the publication, date of publication and nameof 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 thearticle will impact the money market. (iii) Illustrate using the money market diagram, the overall impact of the chosen actionfrom the article on…Explain various causes of disequilibrium in the Balance of Payment (BOP)2. Using suitable illustrations, distinguish clearly between the short-run Philip’s curve and the long-run Philip’s curve3. An economy shows the following featuresConsumption, C = 50 + 0.9YdTax Revenue, T = 100Investment, I = 150 – 5iGovernment Expenditure, G = 100Money demand, L = 0.2Y – 10iMoney Supply, M = 100Exports, X = 20Imports, M = 10 + 0.1YN/BYd is the disposable incomeRequired,(a) Obtain the IS and LM equations of the economy(b) Find the equilibrium income and rate of interest(c) Find the balance of trade
- Consider an economy with a constant nominal money supply, a constant level of real output Y=100, and a constant real interest rate r =0.10. Suppose that the income elasticity of money demand is 0.5 and the interest elasticity of money demand is -0.1. A. By what percentage does the equilibrium price level differ from its initial value if output increases to Y=106 (and r remains a 0.10)? B. By what percentage does the equilibrium price level differ from its initial value if the real interest rate increases to r=0.11 (and Y remains at 100)? C. Suppose that the real interest rate increases to r=0.11. What would real output have to be for the equilibrium price level to remain at its initial value? 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 that the money demand function is(M/P)d = 1,000 - 100r, where r is the interest rate in percent. Themoney supply M is 1,000 and the price level Pis 2.a. Graph the supply and demand for real moneybalances.b. What is the equilibrium interest rate?c. Assume that the price level is fixed. Whathappens to the equilibrium interest rate if thesupply of money is raised from 1,000 to 1,200?d. If the Fed wishes to raise the interest rate to7 percent, what money supply should it set?a)Draw the effect this policy will have in the IS-LM framework (1 graph, Method 3). Label all axes, curves, the new, and the old equilibrium. b)Using your graph from part (a), describe the equilibrium change in 4 variables listed below following an increase in taxes: 1. Output: 2. The interest rate: 3. Consumption: 4. Investment: c)Following the increase inT, suppose the Fed implements contractionary monetary policy. Draw the effects of the Fed’s reaction in the IS-LM framework (1 graph, Method 3). d)Using your graph from part (c), describe the equilibrium change in 2 variables listed below following an increase in taxes and contractionary monetary policy. Compare them with the case when both contractionary fiscal policy and contractionary monetary policies were not implemented. 1. Output: 2. The interest rate:
