I. Fill in the table below and answer the questions that relate to the data in the table.NominalNominalRealExpectedReal policyRiskSituation policyborrowingborrowinginflationinterest ratepremiuminterest rateinterest rateinterest rateAВ41C24D26.3E-2а.Which situations correspond to the case where the nominal policy interest rate is at theZero Lower Bound?b. Which situation has the highest risk premium? What two factors in bond markets lead toa positive risk premium?c. Why is it so important when the nominal policy interest rate is at the Zero Lower Boundto maintain a positive expected rate of inflation?

A nominal interest rate is the interest rate before inflation is factored in. Nominal can also refer…

I. Fill in the table below and answer the questions that relate to the data in the table. Nominal Nominal Real Expected Real policy Risk Situation policy borrowing borrowing inflation interest rate premium interest rate interest rate interest rate A 3 В 4 2 4 2 6 3 E -2

I. Fill in the table below and answer the questions that relate to the data in the table. Nominal Nominal Real Expected Real policy Risk Situation policy borrowing borrowing inflation interest rate premium interest rate interest rate interest rate A 3 В 4 2 4 2 6 3 E -2

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 23CTQ: Given the federal budget deficit in recent years, some economists have argued mat by adjusting...

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Given the federal budget deficit in recent years, some economists have argued mat by adjusting Social Security payments for inflation using me CPI, Social Security is warming recipients. What is their argument, and do you agree or disagree with it?
Assume that investment, government expenditures, taxes are autonomous.C = 2000 + 0.65* (Y-T)I = 900 – 50iG = 400T = 1500M = 1000P = 2L = 0.50Y-25ia.What is the value of the sensitivity money demand to the level of income?b.What is the value of the nominal supply?c.What expression represents the IS curve?d.What is the equilibrium interest rate, i*?e.What is the equilibrium income, Y*?
Asap plz Assuming the economy has a strong-form market and that the current economy has reached its long-term equilibrium with optimal inflation rate π = 3 (%) and the aggregate output y = 10 (£bil). The economy has the following AD-AS curves: I. AD Curve: π = 10-0.7y II. AS Curve: π = 1+0.2y III. LRAS Curve: y = 10 Now, the central bank intends to use monetary policy to boost economic growth and suggest the government to increase £1bil in government expense. You are a researcher and now reviewing effect increased expense. a. What is the short-term equilibrium of π and y? b. What is the long-term equilibrium of π and y? c. What is the new AS curve? Do you think central bank’s suggestion on monetary policy effective?
a) Which of the following would a classical macroeconomist disagree with? The interest rate is the price of time or productivity of capital Nominals effect nominals Recessions are caused by an over production of all economic goods Prices should be as flexible as possible Effective demand comes from prior supply b) Which of the following is true? The expected costs and returns for holding money are important for estimating the demand of real cash balances The difference between nominal GNP and real GNP is that nominal GNP has been adjusted by a price deflator to account for changes in the value of money (inflation) People in Group 1 receive the inflation tax on their cash-balances Interest is the price of money The real money supply is equal to the nominal money supply divided by the real money supply
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?
Cd= 200+.8Y - 500r Id= 200 – 500r Real interest rate r in the equilibrium equals .2. What is the government spending G of this economy so that its full employment output of Y is 1000? Suppose M bar=8000 and r=.2. L(Y,r)=.75Y-250r. What is the price level P in this economy for Y=1000? Please draw your IS-LM curves in your graph. Use the graph to illustrate what may happen if the company had an adversary price shock.
1-)What is the difference between a real rate and a nominal rate? Say you got a raise of 10% of your salary but inflation increased by 15%, what is your real percent increase in salary? How should we use this in every day life to make changes that will make us wealthier over time. 2-) How can we use the Aggregate Supply and Demand Model to help us understand what the government is doing in the current Covid19 economic crisis? 3-) What is the basic difference between Fiscal and Monetary Policy, how are they used during recessions? 4-)
Now, consider an economy in which the demand for money is of the formY(1 + it)for t = 0, 1, 2, · · · , where output is 150 and it denotes the nominal interest rate inperiod t. The REAL INTEREST RATE, denoted r, is constant and equal to 4%. In period0 and 1, the money supply is 100 and people expect that money supply wouldbe 100 forever. People have rational expectations. In period 2, the central banksurprises people and sets the money supply will grow at 2 percent forever, that is,M0 = 100, M1 = 100, M2 = (1.02)M1, M3 = (1.02)M2, and so on. A. Find the inflation rate, nominal interest rate, real money balance in period 1,and expected inflation in period 2, given the information available in period1, π1, i1,M1 / P1, and, E1π2. B. Find the inflation rate, nominal interest rate, real money balance in period 2,and expected inflation in period 3, given the information available in period 2. (π2, i2, M2 / P2 and E2π3.) C. Find the inflation rate, nominal interest rate, and real money…
Now, consider an economy in which the demand for money is of the formY / (1 + it) for t = 0, 1, 2, · · · , where output is 150 and it denotes the nominal interest rate inperiod t. The real interest rate, denoted r, is constant and equal to 4%. In period0 and 1, the money supply is 100 and people expect that money supply wouldbe 100 forever. People have rational expectations. In period 2, the central banksurprises people and sets the money supply will grow at 2 percent forever, that is,M0 = 100, M1 = 100, M2 = (1.02)M1, M3 = (1.02)M2, and so on. A . Find the inflation rate, nominal interest rate, real money balance in period 1,and expected inflation in period 2, given the information available in period1, π1, i1, M1 / P1 and, E1π2. B . Find the inflation rate, nominal interest rate, real money balance in period 2, and expected inflation in period 3, given the information available in period 2, π2, i2, M2 / P2 and E2π3. C . Compare E1π2 and π2.
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.
The president of the United States announces in a pressconference that he will fight the higher inflation ratewith a new anti-inflation program. Predict what willhappen to interest rates if the public believes him.
Suppose in the real business cycle model that there is a simultaneous temporary increase inboth current government spending and in the current money supply. Draw diagrams for thelabour, goods and money market, and the production function. Determine the equilibriumeffects of these two shocks occurring simultaneously on employment, output, consumption,investment, money, real wages, the real interest rate, and the price level. Provide a detailedeconomic analysis explaining your results with the aid of the diagrams.