Assume that as a consequence of an IS shock the economy is initially at a point with output above equilibrium (y > ye), and inflation of 4% above a 2% target. By means of a diagram, explain how the central bank will respond to this new information about economic conditions and discuss the effects on the economy.
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Assume that as a consequence of an IS shock the economy is initially at a point with output above equilibrium (y > ye), and inflation of 4% above a 2% target. By means of a diagram, explain how the central bank will respond to this new information about economic conditions and discuss the effects on the economy.
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- Chapter 14, Problem 5, p. 530. (not answered) In the New Keynesian model, how should the central bank change its target interest rate in response to each of the following shocks? Use diagrams and explain your results. (a) There is a shift in money demand. (b) Total factor productivity is expected to decrease in the future. (c) Total factor productivity decreases in the present Chapter 14, Problem 6, p. 530. (not answered) In the New Keynesian model, suppose that in the short run the central bank cannot observe aggregate output or the shocks that hit the economy. However, the central bank would like to come as close as possible to economic efficiency. That is, ideally the central bank would like the output gap to be zero. Suppose initially that the economy is in equilibrium with a zero-output gap. (a) Suppose that there is a shift in money demand. That is, the quantity of money demanded increases for each interest rate and level of real income. How well does the central bank perform…please type the answer by computer, so i can see it clearly, thank you!!! Please answer in detail Determine whether the following statement is True, False, or Uncertain, and explain your answer. Statement: Under certain economic conditions (or, after certain economic shocks that move the economy away from the initial steady state), the Central Bank can accelerate the transition to the new medium-run equilibrium by using expansionary monetary policyConsider an economy that is initially in its long-run equilibrium. Suppose this economy suffers a temporary negative supply shock. If the central bank’s sole objective is to stabilize output in the short-run, then what will happen after the central bank has responded according to its objective? A. Inflation will be lower, output will back at its original level B. Inflation will be lower, output will be lower C. Inflation will be higher, output will be higher D. Inflation will be lower, output will be higher E. Inflation will be higher, output will be lower F. Inflation will be higher, output will back at its original level
- evaluate the role of floating rates as automatic stabilisers when exogenous shocks hit the economy.Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that, due to increased instability in the financial markets, a decrease in investor and consumer confidence occurs. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose the Federal Reserve wants the economy to return to full-employment as quickly as possible. Should the Fed intervene? If so, show the impact of successful monetary policy on your graph. Label this new equilibrium point "3."Show using an aggregate supply and demand curve diagram, how an initial increase inaggregate demand though monetary policy may have no effect on output if workers with“rational expectations” seek wage rises to compensate for the expected higher price level.
- Fiscal and Monetary Policies Nowadays, many Central Banks use target inflation in their monetary policy framework to achieve a stable and low level of inflation. Related to that, do you agree with the statement that says “by only focusing on achieving inflation target, the Central Bank will not be able to control the economy’s output fluctuation.” Explain your answer by using an appropriate theory, model/equationExplain and demonstrate graphically that if the central bank pursues targeting the interest rate, it is likely to lose control over a monetary aggregate. Include correctly labled diagrams.Please only answer part D (I already have part a, b, and c) In the New Keynesian model, suppose that in the short run the central bank cannot observe aggregate output or the shocks that hit the economy. However, the central bank would like to come as close as possible to economic efficiency. That is, ideally the central bank would like the output gap to be zero. Suppose initially that the economy is in equilibrium with a zero-output gap. (a) Suppose that there is a shift in money demand. That is, the quantity of money demanded increases for each interest rate and level of real income. How well does the central bank perform in relative to its goal? Explain using diagrams. (b) Suppose that firms expect total factor productivity to increase in the future. Repeat part (a). (c) Suppose that total factor productivity increases in the current period. Repeat part (a). (d) Explain any differences in your results in parts (a)–(c) and explain what this implies about the wisdom of following an…
- Assume a country’s economy is currently in recession. Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following. Current real output, labeled Y1, and current price level, labeled PL1 Full employment output, labeled Yf Identify one action the central bank can take to help the economy recover from the recession. Draw a correctly labeled graph of the money market, and show the impact of the central bank’s action identified in part (b) on the nominal interest rate. On your graph for part (a), show the effect of the central bank’s action identified in part (b) on real output and the price level. Assume there is an increase in business confidence as a result of the central bank’s action. What will happen to the demand for capital goods? Draw a correctly labeled graph of the loanable funds market, and show the effect of the change identified in part (e)(i) on the real interest…Assume a country’s economy is currently in recession. Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following. Current real output, labeled Y1, and current price level, labeled PL1 Full employment output, labeled Yf Identify one action the central bank can take to help the economy recover from the recession. Draw a correctly labeled graph of the money market, and show the impact of the central bank’s action identified in part (b) on the nominal interest rate. On your graph for part (a), show the effect of the central bank’s action identified in part (b) on real output and the price level. Assume there is an increase in business confidence as a result of the central bank’s action. What will happen to the demand for capital goods? Draw a correctly labeled graph of the loanable funds market, and show the effect of the change identified in part (e)(i) on the real interest…Suppose country A has a central bank with full credibility, and country B has a central bank with no credibility.Using a graph of aggregate demand and supply EXPLAIN how the credibility of each country’s central bank affect economic outcomes, if both countries are hit with the same.
