Hello, I would like help with this assignmentThank you!Monetary PolicyAssume the economy is inflationary where Y>Y* and P<P* demonstrate the state of the economy graphically and explain.Assume the MPC for the US is 80% and the government decides to increase regulation on business such that the cost of doing business increases by 3% or $500 billion dollars per year in the aggregate. Demonstrate and explain your answer fully.What Monetary Policy should the Federal Reserve Implement? What choices do they have to effect this policy? Demonstrate and explain the effects of this policy on the economy? Hint use the 5 steps from class

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Asked Nov 29, 2019
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  1. Monetary Policy
    1. Assume the economy is inflationary where Y>Y* and P<P* demonstrate the state of the economy graphically and explain.
    2. Assume the MPC for the US is 80% and the government decides to increase regulation on business such that the cost of doing business increases by 3% or $500 billion dollars per year in the aggregate. Demonstrate and explain your answer fully.
    3. What Monetary Policy should the Federal Reserve Implement? What choices do they have to effect this policy? Demonstrate and explain the effects of this policy on the economy? Hint use the 5 steps from class
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Expert Answer

Step 1

a.

Inflation is a situation in the economy, when there is general rise in the price level of goods and services in the market.

In the figure, point 1 is the initial economic situation with equilibrium level of output and price. whereas point 2, represent the inflationary situation in the economy where level of output is higher, and price is lower.

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AS1 AS2 2 AD 0 Y* Y Output Price

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Step 2

b.

If government decides to increase regulation on business that will increase the cost of doing business by 3% or $500 billion per year in the aggregate, then aggregate supply in the market decrease because of high cost of doing business. Due to fall in aggregate supply in the market, aggregate supply curve shifts to the left and as a result output fall and price rises.

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AS2 AS1 P2 P1 AD Y2 Y1 Output Price

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Step 3

In the figure, point 1 is the initial economic situation with Y1 level of output and P1 level of price. whereas point 2, represen...

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