leit 1-44 Use the figure that follows to answer the question. AS1 AS ADI AD An economy in short-run equilibrium at point D has a[n). gap. The gap could be eliminated by the self-correcting mechanism of the economy, eventually achieving long-run equilibrium at pointor the central bank could intervene with monetary easing and the long- run equilibrium would be at point Select one: O a. recessionary; E;C O b. expansionary; C; E Oc. recessionary; C; E d. expansionary; E; C

leit 1-44 Use the figure that follows to answer the question. AS1 AS ADI AD An economy in short-run equilibrium at point D has a[n). gap. The gap could be eliminated by the self-correcting mechanism of the economy, eventually achieving long-run equilibrium at pointor the central bank could intervene with monetary easing and the long- run equilibrium would be at point Select one: O a. recessionary; E;C O b. expansionary; C; E Oc. recessionary; C; E d. expansionary; E; C

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5PA

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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?
NEED MODEL DRAWN PLEASE Draw an IS-LM model in general equilibrium. Show the effect of expansionary monetary policy in the short run, and then explain what adjustmentwill happen in a classical version of the model. Did this policy accomplishanything with regards to GDP growth
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.
When might conventional monetary policy not work? O A. When there is too much inflation. OB. When there is a recession. OC. When central banks need interest-rate tools. OD. When there is a zero-lower-bound problem. Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism. Answer completely and accurate answer. Rest assured, you will receive an upvote if the answer is accurate.
conomics Consider a consumption function of C = 0.75 (Y – T). a) If government spending increases by $300 and there is a tax hike of $500 to fund thisincrease, according to the IS-LM model will the IS curve shift up or down and byhow much?b) Considering your shift in the IS curve from part a, how should the Federal Reserveadjust the money supply if they want to keep interest rates constant?
a) Which of the follwing monetary policy actions can be used to close an inflationary gap?O No change in the money supply to keep interest rates constant.ODecrease the money supply to decrease interest rates,OIncrease the money supply to increase interest rates.O Increase the money supply to decrease interest rates.O Decrease the money supply to increase interest rates. b) Assume the economy is initially at full-employment equilibrium. Suppose the economy slows down and uncertainty increases, reducing consumption and investment expenditures, in the short run, this shock willcause the economy to fall below full enployment. To move the economy to a full-employment equilibrium, the Fed could:O. decrease government spendingO. increase corporate tax ratesO. lower the federal fund rate targetO. increase government spending O. raise interest rates
. Assume that the monetary policy curve is given byr = 1.5 + 0.75p.a. Calculate the real interest rate when the inflation rateis 2%, 3%, and 4%.b. Draw a graph of the MP curve, labeling the pointsfrom part (a).c. Assume now that the monetary policy curve is givenby r = 2.5 + 0.75p. Does the new monetary policycurve represent an autonomous tightening or loosening of monetary policy?d. Calculate the real interest rate when the inflation rateis 2%, 3%, and 4%, and draw the new MP curve,showing the shift from part (b).
In the full SR model, IS-LM, we know that if to falls, cet. par., then the real Money Supply will increase. True, False, Uncertain? Explain. Show graphs in i-Y space and i-M/P spaces.
Which monetary policy tool can the Federal Reserve use to conduct an expansionary monetarypolicy (please state at least one instrument)? Which monetary policy instrument can the Fed useto conduct a restrictive monetary policy? Assume the country is experiencing highunemployment and a recession, such as during 2001, 2008-2009, and 2020. What is the Fedlikely to do in this scenario? Discuss the effects of such policy on the economy. Can you givea specific example to what the Fed did during any of those recessions? This is not a writing, it is economic.
[S1] Treasury bond buybacks may indicatethat there is a relaxed monetary policy. Abusiness entity would most likely expecthigher aggregate demand and higherinflation. [S2] Green policies against the useof plastic will be,implemented. All entities willbe negativelyaffected by this. A. Only S1 is true.B. Only S2 is true.C. Both are true.D. Both are false.
Suppose now that economists expect the velocity ofmoney to increase by 50% as a result of the monetarystimulus. What will be the total increase in nominalGDP?
Consider the following numerical example of the IS-LM model: C = 200 + 0.25YD I = 150 + 0.25Y - 1000iG = 250 T = 200 i = .05 a. Derive the IS relation. (Hint: You want an equation with Y on the left side and everything else on the right.) b. The central bank sets an interest rate of 5%. How is that decision represented in the equations? c. What is the level of real money supply when the interest rate is 5%? Use the expression:(M>P) = 2Y - 8000i d. Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I, and G. e. Now suppose that the central bank cuts the interest rate to 3%. How does this change the LM curve? Solve for Y, I, and C, and describe in words the effects of an expansion-ary monetary policy. What is the new equilibrium value of M/P supply? f. Return to the initial situation in which the interest rate set by the central bank is 5%. Now suppose that government spending increases to G = 400. Summarize the effects of an expansionary…