If the Fed indicates that inflation is likely to be a concern in the near future, the public would expect that it might Lower interest rates at its next meeting Not change interest rates at its next meeting Raise interest rates at its next meeting Lower interest rates before its next meeting Decrease the federal budget deficit at its next meeting

If the Fed indicates that inflation is likely to be a concern in the near future, the public would expect that it might Lower interest rates at its next meeting Not change interest rates at its next meeting Raise interest rates at its next meeting Lower interest rates before its next meeting Decrease the federal budget deficit at its next meeting

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter15: The Debate Over Monetary And Fiscal Policy

Section: Chapter Questions

Problem 5DQ

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Read the following excerpts. Identify whether the policy action is fiscal or monetary and expansionary or contractionary. Draw and label the change that would occur on the AD/AS graph as a result of the policy action described in each. Identify what will happen as a result of the policy to the price level, employment, and real GDP. Excerpt from FOMC Statement Released December 16, 2008 “The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to ¼ percent. Since the Committee’s last meeting labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.” Identify whether the policy action is fiscal or monetary. Identify whether the policy action is expansionary or contractionary. Draw and label the change…
Read the following excerpt. Identify whether the policy action is fiscal or monetary and expansionary or contractionary. Draw and label the change that would occur on the AD/AS graph as a result of the policy action described. Identify what will happen as a result of the policy to the price level, employment, and real GDP. Excerpt from FOMC Statement Released December 16, 2008 “The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to ¼ percent. Since the Committee’s last meeting labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.” Identify whether the policy action is fiscal or monetary. Identify whether the policy action is expansionary or contractionary. Draw and label the change that…
Suppose the Fed wants to set the real interest rate 1 percentage point lower than the inflation rate. Nominal interest rates cannot fall below zero. Graph the MP curve for inflation values between -2% and 2%. Graph the AD curve. Label the inflation rate at which it kinks.
Assume that as a result of the coronavirus and U.S. (Federal) Government policies to ameliorate or lessen the virus’ public health impact, the U.S. unemployment increases from 3.6% to 13.7% by May, 2020. As part of monetary and fiscal policies, however, beginning in the summer of 2020 the Fed purchases over $3.5 Trillion in U.S. government bonds and Federal Government transfers $5,000 to every U.S. adult over 18 years old (not in college…. sorry) financed by government debt. Then, as a part of its overall public health policies, the U.S. government begins to relax or loosen its previous travel and “shutter in” policies in the Spring 2021 so that people can now go to restaurants, movies or sporting events and the like more freely. Absent increases in the United States long run aggregate supply, the combined economic effects of such policies would most likely be:
Assume that as a result of the coronavirus and U.S. (Federal) Government policies to ameliorate or lessen the virus’ public health impact, the U.S. unemployment increases from 3.6% to 13.7% by May, 2020. As part of monetary and fiscal policies, however, beginning in the summer of 2020 the Fed purchases over $3.5 Trillion in U.S. government bonds and Federal Government transfers $5,000 to every U.S. adult over 18 years old (not in college…. sorry) financed by government debt. Then, as a part of its overall public health policies, the U.S. government begins to relax or loosen its previous travel and “shutter in” policies in the Spring 2021 so that people can now go to restaurants, movies or sporting events and the like more freely. Absent increases in the United States long run aggregate supply, the combined economic effects of such policies would most likely be: A. Lower GDP growth. B. Higher rates of inflation. C. Higher unemployment rates…
d. Macroland implements a combination of expansionary fiscal and monetary policies. What will be the effect of these policies on each of the following?i. Aggregate demand in Macrolandii. The price level in Macroland iii. Explain the effects of expansionary fiscal policies on interest rates inMacroland.iv. Explain the effects of expansionary monetary policies on interest rates in Macroland.
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The Taylor Rule and inflation Suppose the initial inflation rate and inflation target are both 2%, that the real federal funds rate is 2%, and that the economy is at the full employment level of output. According the Taylor Rule, the federal funds target should be4% . Suppose now that the inflation rate changes to 4%. The Taylor Rule now prescribes that the federal funds target should be . Next, suppose that economists predict that the economy would be at full employment at a level of $14.00 trillion. However, the actual GDP in the United States is $12 trillion. Assuming that the inflation rate is still 4%, the Taylor Rule prescribes that the federal funds Expert Answer
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