If the FED maintains a binding zero interest rate policy at full-capacity income, then the long-run aggregate supply curve is no longer vertical at full-capacity income. True False Uncertain
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If the FED maintains a binding zero interest rate policy at full-capacity income, then the long-run
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- What does the Taylor rule imply that policymakers shoulddo to the fed funds rate under the following scenarios?a. Unemployment rises due to a recession.b. An oil price shock causes the inflation rate to rise by1% and output to fall by 1%.c. The economy experiences prolonged increases inproductivity growth while actual output growth isunchanged.d. Potential output declines while actual output remainsunchanged.e. The Fed revises its (implicit) inflation target downward.f. The equilibrium real fed funds rate decreases.If the Fed lowers the federal funds rate, the first effect in an AS/AD figure is a ________ shift of the ________ curve. a. rightward; AD b. leftward; AD c. rightward; SAS d. leftward; SASAssume that the fed adopts an inflation-targeting strategy. if oil prices rive abruptly by 20percent in response to an oil shortage, describe how the fed's monetary policy would be affected by this situation. do you think the inflation-targeting would be more or less effective in this case than if the fed balances its inflation concerns with unemployment concerns? explain?
- We are in eqm in the full SR model, IS-LM. Following a single shock (so that only one curve shifts), cet. par., we see that the nominal interest rate has fallen and Y has risen then we know with certainty that the Fed has engaged in expansionary policy. True, False, or Uncertain? Show graph in i-Y space and explain fully.“If f increases, then the Fed can keep output constantby reducing the real interest rate by the same amount asthe increase in financial frictions.” Is this statement true,false, or uncertain? Explain your answer.Suppose the Federal Reserve ("the Fed") shifts to an expansionary monetary policy by buying bonds through open-market operations. Assume that this policy is unanticipated. This problem will work through the short-run effects of this move. The following graph shows the money demand and money supply curves. Show the effect of the Fed's expansionary monetary policy by shifting one or both of the curves, and ignore any potential feedback effects. As a result of the Fed's policy, the interest rate to . Money DemandMoney Supply03006009001200150018006543210INTEREST RATE (Percent)QUANTITY OF MONEY (Billions of dollars)Money Demand Money Supply 900, 3 The following graph shows the demand for investment. Show the short-run effect of the Fed's expansionary monetary policy by shifting the curve or moving the point along the curve. Again, ignore any potential feedback effects. Be sure the new interest rate corresponds to the interest rate you have on the top graph.…
- Suppose the Federal Reserve ("the Fed") shifts to a contractionary monetary policy by selling bonds through open-market operations. Assume that this policy is unanticipated. This problem will work through the short-run effects of this move. The following graph shows the money demand and money supply curves. Show the effect of the Fed's contractionary monetary policy by shifting one or both of the curves, and ignore any potential feedback effects. As a result of the Fed's policy, the interest rate______to______ .Using the fed model linking the IS-MP Framework with the philips curve,draw a graph that illustrate the following scenario. Expected inflation is 1.5%. The economy is initially in macroeconomic equillibrium with a real intrest rate of 3% . An output gap of -1% and an actual inflation rate of 1%.The following set of equations describe an economy: C = 15,000+0.5(r-T)-50,000 rl^P = 10,000 - 25,000 г G = 8,000 NX = 2,600 T = 8,200 Y^* = 46,800 a. Find a numerical equation relating planned aggregate expenditure to output and to the real interest rate. PAE = b. At what value should the Fed set the real interest rate to eliminate any output gap? (Hint Set output Y equal to the value of potentia output given above in the equation you found in part a. Then solve for the real interest rate that also sets planned aggregate expenditure equal to potential output.) Instructions: Enter your response as a whole number. Real rate of interest:
- Using the Taylor Rule, find the appropriate Federal Funds rate (FFR). Assume that the Fed has target inflation rate of 2% and a target GDP growth rate of 3%. What FFR should the Fed target if the current inflation is 5% and the growth rate is 4%?Assume that the Fed's goal is to stabilize national income. Under what conditions would a money supply target be more desirable than an interest rate target?If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y − 20,000r, andpotential output equals 34,000, what real interest rate must the Federal Reserve set to bring theeconomy to full employment?