If there is a negative inflation gap, and a negative output gap - the policy rule says the Central Bank would like to: Group of answer choices Keep interest rate steady. Increase real interest rate. Reduce real interest rate. Enact expansionary fiscal policy.
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If there is a negative inflation gap, and a negative output gap - the policy rule says the Central Bank would like to:
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- Suppose real and potential GDP are initially equal. If the Fed increases the target inflation rate, then in the short run we would expect a decrease in the rate of inflation. an increase in the rate of inflation. a higher real rate of interest. lower unemployment. a higher nominal interest rate.In an economy, the money supply growth rate is 5.0%, the equilibrium real interest rate is 1.5%, the potential growth rate is 4.0%, the economic growth rate is 1.0%, the inflation rate is 3.0%, the unemployment rate is 4.5%, and the rate of increase in the circulation speed is -2%. In this case, in an economy that pursues an inflation target of 2.0%, what is the appropriate interest rate target based on Taylor's rule?Assume the U.S. economy is already operating above the full-employment level of GDP (i.e., above 2.5%). If the Trump tax cuts put additional upward pressure on GDP growth and inflation, fiscal policy should further increase government expenditures monetary policy should be raising interest rates monetary policy should do nothing monetary policy should decrease the growth rate of the money supply
- In the classical view, raising money supply will only cause inflation because Group of answer choices people will foresee inflation in the future with rational expectation. fiscal policy does not work in the short run. the velocity of money circulation is unpredictable. the real GDP output and the velocity of money circulation are fixed.In the figure above, assume that output is $10.5 trillion, while potential output is $12 trillion. If there is no policy intervention, we should expect ________. A) rightward shifts of IS & AD, so that both output and inflation rise B) a decrease in inflation to shift the MP curve, raising the real interest rate C) declines in both the inflation rate and the real interest rate as output rises D) a decrease in inflation to shift the AD curve, causing output to rise E) none of the aboveThose economists who believe that monetary policy is more potent than fiscal policy argue that the: A) responsiveness of money demand to the interest rate is large. B) responsiveness of money demand to the interest rate is small. C) IS curve is nearly vertical. D) LM curve is nearly horizontal.
- Economist will focus on achieving macroeconomic goals. There are four major economic goals namely as full employment, price stability, economic growth and equitable distribution of income. However, it is impossible for a government to achieve all four macroeconomic goals simultaneously. Briefly discuss how a government will not be able to implement two particular goals at the same time. According to Keynes, people have demand for money due to three different motives foe holding money rather than other forms. Hence, identify the THREE (3) motives according to Keynesian approach.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.34. Discretionary fiscal policy refers to A) deliberate government efforts to stabilize the economy through government spending and taxes. B) the use of automatic stabilizers and intervention policies to stabilize the economy. C) any government policy that requires a lag period of at least three months. D) the deliberate use of government spending and taxes to complement the effects of monetary policy in an effort to stabilize the economy. 35. An inflationary gap can be closed with A) using an expansionary monetary policy. B) using a policy action such as a reduction in taxes. C) using a policy action such as a reduction in government purchases. D) imposing price controls to prevent prices from rising. 36. The term “crowding out” refers to the phenomenon that occurs when increased government spending A) raises the price level and reduces consumption. B)…
- The MP curve indicates the relationship between ___ and the ____. A. taxes; price level B. the real interest rate; inflation rate C. monetary policy ; IS curve D. all of the above E. none of the aboveThe ____________ lag for monetary policy is generally ____________ than it is for fiscal policy. A) recognition; longer B) recognition; shorter C) implementation; longer D) transmission; longer E) transmission; shorterEconomics Assess the following event on the assumption that policymakers are using the Taylor rule as a basis for policy changes, as specified in equation: r = 2 + 0.5(π – π^T) + 0.5(Y-Y^P). In 1973, the United States experienced an unexpected slowdown in productivity, which reduced potential output. Show how the real interest rate (r), output (Y), and inflation behave in the short-run and long-run. Explain and graph using MP, IS, and AD-AS graph to demonstrate. do not provide hand written solution
