Consider the graphs, which show aggregate supply (AS) and the change in aggregate demand (AD) from ADi to AD2 thatwill result from the monetary policies. Match each policy with the graph showing the corresponding shift.ADADAnswer BankThe central bank increases themoney supply.The central bank sells bonds on theopen market.ASThe central bank increases the requiredReal GDIPreserve ratioADThe central bank uses open marketoperations to conduct expansionarymonetary policy.ADThe central bank buys bonds fromprivate banks.The central bank decreases thediscount rateReal GDIP

1.)Rightward shift in aggregate demand (AD) curve:The central bank uses the Open market operation to…

Answered: Consider the graphs, which show…

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5CQQ

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On June 5, 2003, the European Central Bank acted to decreasethe short-term interest rate in Europe by half a percentagepoint, to 2 percent. The bank’s president at the time, WillemDuisenberg, suggested that, in the future, the bank could reducerates further. The rate cut was made because European coun-tries were growing very slowly or were in recession. What effectdid the bank hope the action would have on the economy? Bespecific. What was the hoped-for result on C, I, and Y?
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 the uniquechallenges that monetary policymakersface at the zero lowerbound, and illustratehow nonconventionalmonetary policy canbe effective undersuch conditions.
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%
Suppose the monetary policy curve is given byr = 1.5 + 0.75p, and the IS curve is given byY = 13 - r.a. Calculate an expression for the aggregate demandcurve.b. Calculate the real interest rate and aggregate outputwhen the inflation rate is 2%, 3%, and 4%.c. Draw graphs of the IS, MP, and AD curves, labelingthe points from part (b) on the appropriate graphs.
During the global financial crisis, how was the Fed ableto help offset the sharp increase in financial frictionswithout the option of lowering interest rates further?Did the Fed’s plan work?
The graph shows the aggregate demand curve and the short-run aggregate supply curve in Artica Potential GDP i Intialy $300 Bilion. A drought decreases potential GDP to 1250 bilon. Draw the new Potenal GDP Ine. Label it. Draw a curve to show what happens if the central bank lowers the federal funds rate. Label the curve. Draw a point at the new equilbrum price level and real GOP Label 1. Now starting trom the original equibrium, draw a curve to show what happens if the central bank raises the federal unds rate Label the curve. Drawa point at the hew equilbrium price level and real GOP, Label it 2. To retum the economy to polental GOP, he central bank should _________ the federal tunde rate O A. Raise O B. lower
Occasionally, the Federal Open Market Committee (FOMC)sets a policy designed to “track” the interest rate. This meansthat the FOMC is pursuing policies designed to keep the interestrate constant. If, in fact, the Fed were acting to counter anyincreases or decreases in the interest rate to keep it constant,what specific actions would you expect to see the Fed take if thefollowing were to occur? (In answering, indicate the effects ofeach set of events on Y, C, S, I, Ms, Md, and r.)a. An unexpected increase in investor confidence leads to asharp increase in orders for new plants and equipment.b. A major New York bank fails, causing a number of worried peo-ple (not trusting even the FDIC) to withdraw a substantialamount of cash from other banks and put it in their cookie jars
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.
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. 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).

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