Suppose the current administration decides to increase government expenditures as a means of fighting the COVID-19 crisis. a) Using a graph of aggregate demand and supply, show the effects of such a decision on the economy in the short run. Describe the effects on inflation and output. b) What will be the effect on the real interest rate, the inflation rate, and the output level if the central bank decides to stabilize the inflation rate?

Suppose the current administration decides to increase government expenditures as a means of fighting the COVID-19 crisis. a) Using a graph of aggregate demand and supply, show the effects of such a decision on the economy in the short run. Describe the effects on inflation and output. b) What will be the effect on the real interest rate, the inflation rate, and the output level if the central bank decides to stabilize the inflation rate?

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter16: Expectations Theory And The Economy

Section16.3: Rational Expectations And New Classical Theory

Problem 3ST

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Suppose the current administration decides to increase government expenditures as a means of fighting the COVID-19 crisis. Using a graph of aggregate demand and supply, show the effects of such a decision on the economy in the short run. Describe the effects on inflation and output. What will be the effect on the real interest rate, the inflation rate, and the output level if the central bank decides to stabilize the inflation rate?
Suppose the current administration decides to increase government expenditures as a means of fighting the COVID-19 crisis. What will be the effect on the real interest rate, the inflation rate, and the output level if the central bank decides to stabilize the inflation rate?
Suppose the current administration decides to increase government expenditures as a means of fighting the COVID-19 crisis. a) Using a graph of aggregate demand and supply, show the effects of such a decision on the economy in the short run. Describe the effects on inflation and output
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Suppose the current inflation rate is a constant 7% and the central bank implements a disinflation policy to reduce it to its target rate of 3%. To achieve this objective the central bank, by increasing its cash rate, raise the nominal interest rate from its current 9% to 14%. In the long run, at which the central bank achieves its inflation target, what will be the nominal rate of interest, the real rate of interest and the inflation rate?
If natural unemployment rate is 5%, nominal interest rate is 7%, inflation is constant at 3%. The central bank adopts an expansionary monetary policy to reduce unemployment rate to 3%. According to EAPC with adaptive inflation, if the inflation rises to 6%, the likely long run outcome of this policy would be a. Real interest rate 3%, natural unemployment rate 3% b. Nominal interest rate 10%, natural unemployment rate 5% c. Nominal interest rate 9%, natural unemployment rate 3% d. Real interest rate 1%, natural unemployment rate 5%
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