Given a recessionary gap, the Federal Reserve will use monetary policy to decrease; increase increase; decrease increase; increase decrease; decrease real GDP and aggregate demand.
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- Determine how each of the following monetary or fiscal policy would shift the aggregate demand curve. Illustrate and explain the following effect. a. Assuming the economy is under full employment, the central bank receives news of a potential economic boom and has decided on a risky measure by conducting contractionary monetary policy. Illustrate and explain the effect of the policy using AD-AS curve.Please no written by hand and no emage Assume that the economy is experiencing a negative GDP gap. If the Federal Reserve engages in expansionary monetary policy, which of the following best describes the outcome? Group of answer choices The aggregate demand curve shifts to the right, the economy moves toward potential RGDP, and the rate of inflation falls. The aggregate demand curve shifts to the right, the economy moves toward potential RGDP, and the rate of inflation rises. The aggregate demand curve shifts to the right, the economy moves toward potential RGDP, and the rate of inflation remains relatively stable.What causes the lags in the effect of monetary and fiscal policies on aggregatedemand? What are the implications of these lags for the debate over active versuspassive policy?
- If the U.S. government's budget deficits are increasing aggregate demand, and the economy is producing at a level that is substantially less than potential GDP, then: a) government borrowing is likely to crowd out private investment. b) an inflationary increase in the price level is in real danger. c) the central bank might react with an expansionary monetary policy. d) higher interest rates will crowd out private investment.“If the demand for reserves did not fluctuate, the Fedcould pursue both a reserves target and an interest-ratetarget at the same time.” Is this statement true, false, oruncertain? Explain.Suppose a wave of negative “animal spirits” overrunsthe economy, and people become pessimistic aboutthe future. To stabilize aggregate demand, the Fedcould _________ its target for the federal funds rateor Congress could _________ taxes.a. increase; increaseb. increase; decreasec. decrease; increased. decrease; decrease
- Use the following information for this problem: Goods Market: Asset Market: C = 3+0.5(Y-T) MS = 25/P; assume that the P=1 initially I = 12-50r MD = Y - 50r T = 10 G = 10 Suppose that when the economy is in the Short Run equilibrium (hand draw a new graph starting at the Short Run) the Federal Reserve wants to conduct a stabilization policy. What is the policy they would use called? Show graphically how they would stabilize.Suppose the economy currently has an inflationary gap. The Fed engages in contractionary monetary policy. The impact of contractionary monetary policy will be toUse the theory of liquidity preference to explain howa decrease in the money supply affects the aggregatedemand curve.
- C = 100+0.8(1-t)Y I = 200- 1000i L = 1/2Y-7000i G= 700 t = 0.33 M/P = 500 a) using the IS - LM model show the impact of the tax cut under two assumptions : i) the government keeps interest rates constant Through an accommodating Monetary Policy. ii) The money stock remains unchanged B) Explain the difference in resultQUESTION 2: WORD LIMIT – MAXIMUM 500 WORDS Using the AD/AS model, analsye how monetary policy may be used alleviate inflationary pressure. In your answer, comment on the UK’s monetary policy framework. Use wellannotated AD/AS diagrams and comment on monetary policies relationship with fiscal policyoptions:aana combination of fiscal and monetary policy a fiscal policya monetary policya largera smaller balanceboth inflation and unemploymentcrowded incrowded outdeficitinflationinflationaryrecessionarysurplusthe sameunemployment