How can balance of payment surplus lead to de-industrialisation and may cause inflationary consequences? Please also explain how demand-pull inflation is caused when the economy is at, or near, full employment in the form of a Keynesian diagram (with explanations).
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How can balance of payment surplus lead to de-industrialisation and may cause inflationary consequences? Please also explain how demand-pull inflation is caused when the economy is at, or near, full employment in the form of a Keynesian diagram (with explanations).
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- Explain the Indirect Keynesian Transmission mechanism if the money supply increases.Which of the following is true of Advantages of the US implicit Nominal Anchor? Select one: a. The Fed’s forward-looking behavior and stress on price stability also help to discourage overly expansionary monetary policy, thereby ameliorating the time consistency problem. b. It does not enable monetary policy to focus on domestic considerations. c. It relies on a stable money-inflation relationship. d. None of the aboveAnswer the given question with a proper explanation and step-by-step solution. Price Level P₂ P ASLR1 AS₁ AD₁ 1 ASLR2 AS2 Q₁ Q₂ Real Domestic Output AD₂ Refer to the graph. Ongoing inflation would occur if the Fed
- State whether the following statements are true, false, or uncertain and explain. -In the sticky-price model, if the economy is in a liquidity trap, the price level, P1, will display a tendency to fall. -Over the past 40 years, the average inflation rate was 3 per cent in country A and 22 per cent in country B. Country B must have had a lower average nominal interest rate than country A.Aggregate demand function is given by Y=7000-20P; the shirt-run aggregate supply function is given by Y=6000+5(P-Pe). The economy was in equilibrium when the government unexpectedly increased its spending which led to a shift of the aggregate demand curve to Y=7500-20P. What's the rate of inflation? Please illustrate the calculations by means of an AS-AD graph.Refer to the Reserve Bank news release below. Use the AD/AS model to answer how each of the economic factors stated are affecting inflation and economic growth. Official Cash Rate unchanged at 1.5 percent Date 26 June 2019 The Official Cash Rate (OCR) remains at 1.5 percent. Given the weaker global economic outlook and the risk of ongoing subdued domestic growth, a lower OCR may be needed over time to continue to meet our objectives. Domestic growth has slowed over the past year. While construction activity strengthened in the March 2019 quarter, growth in the services sector continued to slow. Softer house prices and subdued business sentiment continue to dampen domestic spending. The global economic outlook has weakened, and downside risks related to trade activity have intensified. A number of central banks are easing their monetary policy settings to support demand. The weaker global economy is affecting New Zealand through a range of trade, financial, and confidence channels. We…
- Refer to the Reserve Bank news release below. Use the AD/AS model to answer how each of the economic factors stated are affecting inflation and economic growth. Official Cash Rate unchanged at 1.5 percent Date 26 June 2019 The Official Cash Rate (OCR) remains at 1.5 percent. Given the weaker global economic outlook and the risk of ongoing subdued domestic growth, a lower OCR may be needed over time to continue to meet our objectives. Domestic growth has slowed over the past year. While construction activity strengthened in the March 2019 quarter, growth in the services sector continued to slow. Softer house prices and subdued business sentiment continue to dampen domestic spending. The global economic outlook has weakened, and downside risks related to trade activity have intensified. A number of central banks are easing their monetary policy settings to support demand. The weaker global economy is affecting New Zealand through a range of trade, financial, and confidence channels. We…Assume that a country’s economy is in a short-run equilibrium and the actual unemployment rate is lower than the natural rate of unemployment. Using a correctly labeled graph of the long-run aggregate supply curve, short-run aggregate supply curve, and aggregate demand curve, show each of the following. Current price level, labeled PL1, and current output level, labeled Y1 The full-employment output level, labeled YF. What open-market operation can the country’s central bank use to move the economy toward its long-run equilibrium? Use a correctly labeled money-market graph to show how the country’s central bank action to move the economy toward its long-run equilibrium affects the equilibrium nominal interest rate in the short run. Based on the interest rate change from part (c), will each of the following increase, decrease, or remain the same in the short run? Real output. Explain. Natural rate of unemployment Assume instead that the central bank does not pursue…In the basic New Keynesian Model, in a liquidity trap where initially there is a positive output gap and inflation is lower than the inflation target, forward guidance is a promise by the central bank of A. lower future output than would otherwise be optimal for the central bank. B. lower current output. C. higher future inflation than would otherwise be optimal for the central bank. D. lower future inflation than would otherwise be optimal for the central bank. E. lower current inflation.
- Supposed the economy is faced with persistently rising prices and there is a real threat of a worsening inflation. What specific actions/policy can the Central Bank implement to curb this threat and why? Based on the IS-LM model, if the Central Bank does this, which curve will shift and in what direction? Predict the effects of the Central Bank action on the following: Income: ________________ Interest Rate: ____________ Consumption: ___________ Investment: ______________Use an AD-AS framework to show the effect of monetary restriction on the output level, prices and interest rate in the short run and the long run.Consider the AD-AS model discussed during the lectures. Assume that the aggregate demand curve is given by Y=8-0.5 π, that the long run aggregate supply curve is given by Yp=7, that the short run aggregate supply curve is given by π = π_expect + 0.3(Y-Yp), and that the monetary rule is given byr=1+0.3 π. Suppose the economy is suffering a decrease in the potential level of output, due to some ill-designed new regulation. According to the AD- AS model, what is more suitable to offset the subsequent decline in output, an expansionary monetary policy or an expansionary fiscal policy?
