The economy is at full employment, with fairly low levels of unemployment and inflation. What is likely to happen to GDP, unemployment, interest rates, and inflation if: d) the government increases its deficit at the same time that the Fed is reducing the money supply. e) the government increases its surplus at the same time that the Fed is increasing the money supply

The economy is at full employment, with fairly low levels of unemployment and inflation. What is likely to happen to GDP, unemployment, interest rates, and inflation if: d) the government increases its deficit at the same time that the Fed is reducing the money supply. e) the government increases its surplus at the same time that the Fed is increasing the money supply

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter16: Monetary Policy

Section: Chapter Questions

Problem 8SQ

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The economy is at full employment, with fairly low levels of unemployment and inflation. What is likely to happen to GDP, unemployment, interest rates, and inflation if: a) the government increases its surplus. b) the government increases its deficit. c) the government increases its surplus at the same time that the Fed is reducing the money supply. D) the government increases its deficit at the same time that the Fed is reducing the money supply. e) the government increases its surplus at the same time that the Fed is increasing the money supply.
If the Fed indicates that inflation is likely to be a concern in the near future, the public would expect that it might Lower interest rates at its next meeting Not change interest rates at its next meeting Raise interest rates at its next meeting Lower interest rates before its next meeting Decrease the federal budget deficit at its next meeting
Assume that the prevailing interest rate in this economy is 6%. If the central bank decides to reduce the interest rate to 4% then: (a) This is contractionary monetary policy action and the price of exports would increase; (b) This is expansionary monetary policy and exports would increase; (c) This is expansionary fiscal policy and imports will increase; (d) This is contractionary monetary policy and imports will decrease.
Suppose a liquidity trap situation exists. Which of the following is most likely to occur if taxes are cut? A) no change in output and no change in the interest rate B) an increase in output and an increase in the interest rate C) an increase in output and little change in the interest rate D) an increase in output and a reduction in the interest rate E) none of the above
If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it, ________. A) it would likely conduct a tightening of monetary policy by raising the real interest rate for any given inflation rate B) it would likely conduct an easing of monetary policy by lowering the real interest rate for any given inflation rate C) it would likely conduct an easing of monetary policy where the real interest rate would increase due to the ensuing decrease in aggregate demand D) it would likely conduct a tightening of monetary policy where the real interest rate would increase due to the ensuing increase in aggregate demand E) none of the above
After the Federal Reserve buys bonds, the interest rate changes and aggregate expenditures change, the following will most likely occur a the price level in the economy will fall and money demand will decrease b the price level in the economy will rise and the money demand will decrease c the price level in the economy will fall and money demand will increase d the price level in the economy will rise and the money demand will increase
When the Fed sells bonds, the amount of money in circulation in the economy_______ . This drives interest rates_________ , which causes businesses to invest________ in capital improvements such as new factories and upgraded equipment. The result is_________ in aggregate demand,________ in the equilibrium price level, and______ in the equilibrium level of real GDP.
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.
Suppose equilibrium GDP is less than full-employment output and the economy is in a recession. What are the appropriate monetary policies that would take the economy to full employment level? A) Lower discount rate B) Lower reserve requirements C) Fed conducts Open Market operations and buys government bonds D) All of the above
Respond to the following in a minimum of 175 words: Explain the chain of events that occurs for expansionary and contractionary monetary policy to affect the long-run equilibrium level of real gross domestic product (GDP). Compare and contrast expansionary and contractionary fiscal policy.
Which of the following statements is false? It might sometimes make sense for a government to combine an expansionary monetary policy with an expansionary fiscal policy. If spending is very responsive to changes in interest rates, and the demand for money is interest inelastic, then monetary policy tends to be more powerful than fiscal policy. It would never make sense for a government to combine an expansionary monetary policy with a contractionary fiscal policy. If spending is not very responsive to changes in interest rates, and the demand for money is interest elastic, then fiscal policy tends to be more powerful than monetary policy
Targeting the federal funds rate ( is, is not ) as important a tool today as it was before the 2007-2009 financial crisis. During the financial crisis when the federal funds rate was near zero, the Fed ( did, did not ) wish to go lower than zero and came up with alternatives to influence interest rates and lending: the administered rates. Today, the Fed still sets a target for the federal funds rate but finds it more effective to change the administered rates. By doing that, the Fed can stimulate or restrict lending. The federal funds rate is the Feds policy rate and (is, is not ) useful when providing forward guidance. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.