Section A Answer the following question. a) Assume that a country is suffering from rising inflation due to an energy crisis. By using the IS-LM model, analytically explain and graphically illustrate two monetary policies that the central bank can implement in order to combat rising inflation. What are their effect on equilibrium short term interest rate, output, consumption and investment? b) Discuss any possible negative side effects that the implementation of these policies may have on the economy. Note: Assume a flat LM curve.

Section A Answer the following question. a) Assume that a country is suffering from rising inflation due to an energy crisis. By using the IS-LM model, analytically explain and graphically illustrate two monetary policies that the central bank can implement in order to combat rising inflation. What are their effect on equilibrium short term interest rate, output, consumption and investment? b) Discuss any possible negative side effects that the implementation of these policies may have on the economy. Note: Assume a flat LM curve.

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter14: Modern Macroeconomics And Monetary Policy

Section: Chapter Questions

Problem 7CQ

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