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Pls state following statements are "True" or "False". Explain briefly
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- Suppose the Federal Reserve announced that itWould pursue contractionary monetary policy toReduce the inflation rate. Would the followingConditions make the ensuing recession more or lessSevere? Explain.A. Wage contracts have short durations.B. There is little confidence in the Fed’s determinationTo reduce inflation.C. Expectations of inflation adjust quickly to actualInflationSuppose the current administration decides to decreasegovernment expenditures as a means of cutting theexisting government budget deficit.a. Using a graph of aggregate demand and supply, showthe effects of such a decision on the economy in theshort run. Describe the effects on inflation and output.b. What will be the effect on the real interest rate, theinflation rate, and the output level if the FederalReserve decides to stabilize the inflation rate?Assume that the fed adopts an inflation-targeting strategy. if oil prices rive abruptly by 20percent in response to an oil shortage, describe how the fed's monetary policy would be affected by this situation. do you think the inflation-targeting would be more or less effective in this case than if the fed balances its inflation concerns with unemployment concerns? explain?
- If real GDP is $18.9 Trillion, potiental real GDP is $18.8 Trillion, and the current inflation rate is 4.2%, what is currently happening in the economy and what FED response is expected?The Taylor Rule and inflation Suppose the initial inflation rate and inflation target are both 2%, that the real federal funds rate is 2%, and that the economy is at the full employment level of output. According the Taylor Rule, the federal funds target should be4% . Suppose now that the inflation rate changes to 4%. The Taylor Rule now prescribes that the federal funds target should be . Next, suppose that economists predict that the economy would be at full employment at a level of $14.00 trillion. However, the actual GDP in the United States is $12 trillion. Assuming that the inflation rate is still 4%, the Taylor Rule prescribes that the federal funds Expert AnswerSuppose a given country experienced low and stableinflation rates for quite some time, but then inflation picked up and over the past decade had beenrelatively high and quite unpredictable. Explain howthis new inflationary environment would affect thedemand for money according to portfolio theories ofmoney demand. What would happen if the governmentdecided to issue inflation-protected securities?
- The Fed is fighting recession and it happens to overstimulate the economy. If the expected inflation rate rises above the 2 percent goal, what is the cost of returning the inflation rate back to its goal? The cost of returning the inflation rate back to its goal is _______. A. an inflationary gap and an even higher inflation rate than initially B. unemployment below the natural unemployment rate C. a decrease in potential GDP and aggregate supply D. a recessionary gap and a higher unemployment rate Thanks!Assume that the current interest rate is 4.0% and the economy is in a mild recession somewhat below YN. Using the model of Liquidity Preference, illustrate with a graph and short explanation how that equilibrium rate of 4.0% is determined. Now, assume the next move by the Fed at its December meeting is to raise the target rate of interest by 50 basis points out of a fear of future inflation. Illustrate this contractionary monetary policy graphically, first through liquidity preference, and then via IS-LM. Could this contractionary move by the Fed result in full employment? Why or why not?The Fed is fighting recession and it happens to overstimulate the economy. If the expected inflation rate rises above the 2 percent goal, what is the cost of returning the inflation rate back to its goal? The cost of returning the inflation rate back to its goal is _______. A. an inflationary gap and an even higher inflation rate than initially B. unemployment below the natural unemployment rate C. a decrease in potential GDP and aggregate supply D. a recessionary gap and a higher unemployment rate
- The Fed’s target for the federal funds ratea. is an extra policy tool for the central bank, inaddition to and independent of the money supply.b. commits the Fed to set a particular money supplyso that it hits the announced target.c. is a goal that is rarely achieved because the Fedcan determine only the money supply.d. matters to banks that borrow and lend federalfunds but does not influence aggregate demand.With a policy of nominal GDP targeting, if the Fed expected 6% growth in real GDP and wanted an inflation rate of 2%, it would set a target for nominal GDP growth of 8% per year. True FalseThe following set of equations describe an economy: C = 15,000+0.5(r-T)-50,000 rl^P = 10,000 - 25,000 г G = 8,000 NX = 2,600 T = 8,200 Y^* = 46,800 a. Find a numerical equation relating planned aggregate expenditure to output and to the real interest rate. PAE = b. At what value should the Fed set the real interest rate to eliminate any output gap? (Hint Set output Y equal to the value of potentia output given above in the equation you found in part a. Then solve for the real interest rate that also sets planned aggregate expenditure equal to potential output.) Instructions: Enter your response as a whole number. Real rate of interest:
