questions 1-4 You have been hired as a Marco Economist by the President of the United States to help evaluate the recentannouncement by Federal Reserve chairman Ben Bernanke that the FED will be increasing interest rates again.Ben Bernanke has justified the move on the grounds that the economy continues to be strong. Answer thefollowing questions. Provide a graphical explanation for your answers whenever possible.1. What is the fed trying to do?slow down the economystimulate the economyremains unchanged8. The exchange rate (the amount of foreigncurrency that a $ buys)?A. increaseA.В.С.B. decreaseC. remains unchanged2. How is the fed doing it?buying bondsselling bondsremains unchangedА.9. The U.S. dollar has?В.A. depreciatedB. appreciatedC. remained unchangedС.3. What happens to bond prices?increasedecreaseremains unchanged10. The currency in the other country has?A. depreciatedB. appreciatedC. remained unchangedA.В.С.4. What happens to the interest rate?A.В.increasedecreaseremains unchanged11. What impact will this have on exports?A. increaseB. decreaseC. remains unchangedC.

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has justified the move on the grounds that the economy continues to be

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter22: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 12P

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You have been hired as a Marco Economist by the President of the United States to help evaluate the recentannouncement by Federal Reserve chairman Ben Bernanke that the FED will be increasing interest rates again.Ben Bernanke has justified the move on the grounds that the economy continues to be strong. Answer thefollowing questions. Provide a graphical explanation for your answers whenever possible. 1. What is the fed trying to do?A. slow down the economyB. stimulate the economyC. remains unchanged 2. How is the fed doing it?A. buying bondsB. selling bondsC. remains unchanged 3. What happens to bond prices?A. increaseB. decreaseC. remains unchanged 4. What happens to the interest rate?A. increaseB. decreaseC. remains unchanged
You have been hired as a Marco Economist by the President of the United States to help evaluate the recentannouncement by Federal Reserve chairman Ben Bernanke that the FED will be increasing interest rates again.Ben Bernanke has justified the move on the grounds that the economy continues to be strong. Answer thefollowing questions. Provide a graphical explanation for your answers whenever possible. 4. What happens to the interest rate?A. increaseB. decreaseC. remains unchanged 5. What happens to the aggregate Demand curve?A. increase (shifts to the right)B. decrease (shifts to the left)C. remains unchanged What is the effect on the foreign exchangemarket (the $ market)? 6. Demand?A. increase (shifts to the right)B. decrease (shifts to the left)C. remains unchanged 7. Supply?A. increase (shifts to the right)B. decrease (shifts to the left)C. remains unchanged
Suppose an economy is in long-run equilibrium.a. Use the model of aggregate demand andaggregate supply to illustrate the initialequilibrium (call it point A). Be sure to includeboth short-run aggregate supply and long-runaggregate supply.b. The central bank raises the money supply by5 percent. Use your diagram to show whathappens to output and the price level as theeconomy moves from the initial equilibrium to thenew short-run equilibrium (call it point B).c. Now show the new long-run equilibrium (call itpoint C). What causes the economy to move frompoint B to point C?d. According to the sticky-wage theory of aggregatesupply, how do nominal wages at point Acompare with nominal wages at point B? How donominal wages at point A compare with nominalwages at point C?e. According to the sticky-wage theory of aggregatesupply, how do real wages at point A comparewith real wages at point B? How do real wages atpoint A compare with real wages at point C?f. Judging by the impact of the money…
Using the model of business fluctuations, show the effect of the COVID-19. Recall that COVID-19 shut down production in a series of important U.S. industries and caused considerable job losses. Fear of the virus caused Americans to travel less, buy fewer personal services, and consume fewer restaurant meals. (b) The Fed responded to the economic effects of COVID-19 by cutting interest rates while Congress passed a large relief package (i.e., an increase in government spending). Show each of these effects on a separate diagram.
With the onset of the Covid-19 pandemic, the UK economy went into its first lockdown at the end of March 2020. This led to a massive reduction in economic activity and a drop in business confidence levels at the time. Inflation in the UK, at the end of March 2020, was measured at 1.5%. a) Use the multiplier model to illustrate (and discuss) how these factors affected output and employment in the short-run. b) During the first lockdown, which sectors of the economy do you think were hardest hit in terms of economic activity and job losses? Explain your answer fully.
3)Show and explain the effects of an increase in aggregate demand in the long-run and short-run by using AD–AScurves.2)Show and explain by using a graph, what will happen to the price level and real GDP if the quantity of moneyincreases and the increase is not anticipated; that is, the price level is not expected to change.1)By using aggregate demand (AD) and aggregate supply (AS) curves, show and explain the effects of ananticipated increase in money supply on macroeconomic equilibrium according to Rational ExpectationsHypothesis.
For each of the following scenarios, tell a story and predict theeffects on the equilibrium levels of aggregate output (Y) and theinterest rate (r):a. During 2005, the Federal Reserve was tightening monetarypolicy in an attempt to slow the economy. Congress passed asubstantial cut in the individual income tax at the same time.b. During the summer of 2003, Congress passed and PresidentGeorge W. Bush signed the third tax cut in 3 years. Many ofthe tax cuts took effect in 2005. Assume that the Fed holdsMs fixed.c. In 1993, the government raised taxes. At the same time, theFed was pursuing an expansionary monetary policy.d. In 2005, conditions in Iraq led to a sharp drop in consumerconfidence and a drop in consumption. Assume that the Fedholds the money supply constant.e. The Fed attempts to increase the money supply to stimulatethe economy, but plants are operating at 65 percent of theircapacities and businesses are pessimistic about the future.
If the Federal Reserve wants to increase aggregate demand (i.e., spending growth) which variable (i.e. letter) in the quantity equation will it alter? Show how The Federal Reserve’s action affects the ASAD graph? Use the ASAD graph and starting with an economy that is in long run equilibrium.
The task I am struggling with: The economy is in short-run macroeconomic equilibrium at point E1 in the accompanying diagram (see the picture). Based on the diagram, answer the following questions. a) Is the economy facing an inflationary or recessionary gap? b) What policies can the government implement that might bring the economy back to long-run macroeconomic equilibrium? Illustrate with a diagram. c) If the government did not intervene to close this gap, would the economy return to long-run macroeconomic equilibrium? Explain and illustrate with a diagram.Thank you very much for your help.
Suppose that when everyone wakes up tomorrow, they discover that thegovernment has given them an additional amount of money equal to the amountthey already had. Explain what effect this doubling of the money supply willlikely have on the following:a. The total amount spent on goods and servicesb. The quantity of goods and services purchased if prices are stickyc. The prices of goods and services if prices can adjust?
Suppose an economist believes that the price level in the economy is directly related to the money supply, or the amount of money circulating in the economy. The economist proposes the following relationship: P=A×MP=A×M • P=Price LevelP=Price Level • M=Money SupplyM=Money Supply • A=A composite of other factors, including real GDP, that change very slowly over time.A=A composite of other factors, including real GDP, that change very slowly over time. How might an economist gather empirical data to test the proposed relationship between money and the price level?
Demand for money is given by the following equation: Md = 0.3y – 8r. If the actual output is decreased by $200,000, then the demand curve for money will shift: and a) direction (to the right/left; b) amount