Suppose the Fed sells $300 billion in government securities and the reserve ratio is 0.2Calculate the resulting change in the money supply. Be certain to include a negative sign.change in the money supply: !$billionNext, show the impact this open market operation will have on the graph in the short run.10Solow growth curveShort-run aggregate supply875032Aggregate demand0089 10Real GDP growth rate (%)Which statement describes the impact on inflation and real GDP the Fed's policy has in the short run?Inflation decreases and real GDP increases.Inflation decreases and real GDP decreases.

Money supply is the stock of money in circulation in an economy in a given time period.Monetary…

Answered: Suppose the Fed sells $300 billion in…

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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Consider the following economy: Labor supply: Nt= 90 Capital stock: Kt = 90 Government spending: Gt = 20 Tax collections: Tt = 20 Production function: Yt = 2(Kt)0.5 (Nt)0.5 Real money demand Lt = 2Yt - 200rt Consumption function: Ct = 16 + 0.8(Yd)t Domestic price level: Pt = 4 Investment function: It = 25 - 50rt Nominal money supply: Mt = 1296 1.Is this a short-run level of output also a long-run equilibrium? Explain. 2.Suppose that the government decreases taxes to T=10. Find the new short-run equilibrium levels of output and interest rate 3.Find the long-run equilibrium levels of output, interest rates and prices. Graph this combination of policies both in the short and in the long run. 4.Explain how the adjustment from the short-run to the long-run occurs.
As you have learned in Unit 8 (this week), monetary and fiscal policy play important roles in economic stimulation and or stabilization. In this regard: a. When is it appropriate to use monetary and fiscal policy to stimulate or stabilize the economy? b. When is it inappropriate to use monetary and fiscal policy to stimulate or stabilize the economy? c. What specific fiscal policy tools would you use to stimulate aggregate demand and how? d. What specific monetary policy tools would you use to stimulate aggregate demand and how? e. What is your conclusion, should policymakers use the monetary and or fiscal policy to stimulate aggregate demand? Explain briefly.
Refer to the table below. Real Output Demanded, Billions Price Level Real Output Supplied, Billions $ 506 108 $ 513 508 104 512 510 100 510 512 96 507 514 92 502 Instructions: Enter your anwers as whole numbers. A). What is the equilibrium level of output? What is the equilibrium price level? B). Suppose that aggregate demand increases such that the amount of real output demanded rises by $ 7 billion at each price level. Insert the new values for real output demanded in the table below. Real Output Demanded, Billions New Real Output Demanded, Billions Price Level Real Output Supplied, Billions $ 506 108 $ 513 508 104 512 510 100 510 512 96 507 514 92 502 What is the new equilibrium level of output? What is the new equilibrium price level? By what percentage will the price level increase? Will this inflation be demand-pull inflation or will it be cost-push inflation? C) If potential real GDP ( that is, full-employment GDP) is $ 510…
1. In the diagram for this exercise, use aggregate demand and short-run and long-run aggregate supply curves to show an economy at a short-run equilibrium with a contrac- tionary gap of $0.5 trillion when potential output is $10 trillion.Then illustrate how the gap would close in the long run if the economy is self-correcting. 2. In the diagram, use aggregate demand and short-run and long-run aggregate supply curves to show an economy at a short-run equilibrium with an expansionary gap of $0.5 trillion when potential output is $10 trillion.Then illus- trate how the gap would close in the long run using an activist approach.
Suppose that the Federal Reserve wants to reduce the money supply. Using our model of the money market, investment, and aggregate demand and aggregate supply, explain the how a reduction of the money supply will influence the price level and real GDP, assuming that the economy is operating in the moderate unemployment range of aggregate supply.
3)Show and explain the effects of an increase in aggregate demand in the long-run and short-run by using AD–AScurves.2)Show and explain by using a graph, what will happen to the price level and real GDP if the quantity of moneyincreases and the increase is not anticipated; that is, the price level is not expected to change.1)By using aggregate demand (AD) and aggregate supply (AS) curves, show and explain the effects of ananticipated increase in money supply on macroeconomic equilibrium according to Rational ExpectationsHypothesis.
Demand for money is given by the following equation: Md = 0.3y – 8r. If the actual output is decreased by $200,000, then the demand curve for money will shift: and a) direction (to the right/left; b) amount
If a central bank buys government securities from the private sector-money markets,leading to an expansion of the money supply, other things being equal, what would theeffect be on the following?(d) Aggregate Supply(e) Aggregate Demand(f) Economic activity(g) Price level of the economy can you help giving me these 4 ans.
Suppose the economy's price level is 2 and real GDP is 30 , 000 for the year. Suppose the money supply is 5 , 000. If the money market is in equilibrium, then how many times per year is the typical dollar bill used to pay for a newly produced good or service? 10 8 12 16
What kind of problem is the U.S. economy facing? Give one possible reason why this problem may exist. State whether the Fed should use fiscal policy or monetary policy to address the situation. Given the stated policy in your answer to question #2, indicate what specific policy tool you would recommend as the appropriate course of action and why you are recommending this tool. Policy Implementation: Utilizing the figure above as your starting point, illustrate (graph) the macroeconomic situation of the United States after a successful implementation of the policy tool you’ve recommended. What are the effects on the macroeconomy on GDP and the aggregate price level?
I only need numbers 4 and 5 to be answered. Using a correctly labeled graph of the long-run aggregate supply curve, short-run aggregate supply curve, and aggregate demand curve, show each of the following. Current price level, labeled PL1, and current output level, labeled Y1 The full-employment output level, labeled YF. What open-market operation can the country’s central bank use to move the economy toward its long-run equilibrium? Use a correctly labeled money-market graph to show how the country’s central bank action to move the economy toward its long-run equilibrium affects the equilibrium nominal interest rate in the short run. Based on the interest rate change from part (c), will each of the following increase, decrease, or remain the same in the short run? Real output. Explain. Natural rate of unemployment Assume instead that the central bank does not pursue the monetary policy action from part (b) and there was no other government intervention. Will each…
The Short-Run Aggregate Supply Curve (AS) is given by: y=20pAnd the Short-Run Aggregate Demand Curve (AD) is given by: y=25,000−20p Suppose instead that the Central Bank wanted to take action to keep the price-level completely stable. This would entail keeping it constant at its current rate. Suppose also that the Central Bank targets the interest rate directly. Suppose also that: • The Marginal Propensity to Spend is 0.75. • Every 1% increase in the interest rate leads to a decrease in Autonomous Consumption of 250 and a decrease in Autonomous Investment of 250. How much would the Central Bank need to change the current interest rate in order to keep the price level from changing through the medium-term as this output gap closes in the economy?

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