Will not change AD Increases AD Decreases AD Answer Bank a reduction in government spending increased concern that a recession is looming a recession occurring in a trading partner's economy a dramatic improvement in the stock market, causing investors' wealth to rise an increase in income tax rates on individuals earning more than $450,000 per year a dramatic decline in the average price of houses an announcement by the central bank to maintain its existing monetary policy

Will not change AD Increases AD Decreases AD Answer Bank a reduction in government spending increased concern that a recession is looming a recession occurring in a trading partner's economy a dramatic improvement in the stock market, causing investors' wealth to rise an increase in income tax rates on individuals earning more than $450,000 per year a dramatic decline in the average price of houses an announcement by the central bank to maintain its existing monetary policy

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

Chapter12: Fiscal Policy, Incentives, And Secondary Effects

Section: Chapter Questions

Problem 3CQ

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Using the AD/AS model, analsye how monetary policy may be used alleviate inflationary pressure. In your answer, comment on the UK’s monetary policy framework. Use wellannotated AD/AS diagrams and comment on monetary policies relationship with fiscal policy.
Question a) Consider that the Ghanaian economy is a Small and close, which ischaracterised by the following.AD=C+I+G+NXC=a+bY*Y*=disposalincomeT=T 0I=I 0G=G0Md/P=Ld(Y,i)Ms=money supply, which is given.AD=Aggregate demand, C=consumption, G=Government expenditure, T=Tax, P= Price level, I=Investment, NX=Net exports i)Suppose the policy change is rather an increase in real money supply not a decrease in government spending. What is the effect of this policy on consumption in the Short Run? (Provide a brief explanation). ii)If the government of Ghana decided to run a balance budget, provide an expression for the balance budget multiplier. iii)What is the effect of the balance budget policy in (e) above on out put (y)? iv)Dorcas is given Ghs10,000.00 to pay for her school fees next semester. Shedecided to deposit Ghs600.00 in her ADB account and the rest in a differentbank. Assume that the require reserve ratio for ADB is15% and 13% for theother bank,determinethe amount of supply in the…
C = 100+0.8(1-t)Y I = 200- 1000i L = 1/2Y-7000i G= 700 t = 0.33 M/P = 500 a) using the IS - LM model show the impact of the tax cut under two assumptions : i) the government keeps interest rates constant Through an accommodating Monetary Policy. ii) The money stock remains unchanged B) Explain the difference in result
If the U.S. government's budget deficits are increasing aggregate demand, and the economy is producing at a level that is substantially less than potential GDP, then: a) government borrowing is likely to crowd out private investment. b) an inflationary increase in the price level is in real danger. c) the central bank might react with an expansionary monetary policy. d) higher interest rates will crowd out private investment.
Expansionary monetary policy and contractionary fiscal policy has a combined effect which is ________.a. a decrease in interest rate and decrease in tax ratesb. an increase in interest rate and increase in tax ratesc. an increase government spending and decrease in money supplyd. an increase in tax rates and decrease in interest rates
Revisited Fiscal and Monetary Policy The IS Curve represents the equilibrium in the goods market and the LM Curve represents the equilibrium in the money market. The following are the equations for the IS-LM curve: IS relation : Y = C(Y – T) + I(Y, r + x) + G LM relation : r = ?̅ Y=Output, C=Consumption, T=Tax, I=Investment, G=Government Expenditure; r=interest rate, x=risk premium. a. What is unconventional monetary policy? When the central bank should conduct this kind of monetary policy? Give an example of unconventional monetary policy. b. Draw the IS-LM movement of unconventional monetary policy and tell the story behind it.
QUESTION 2: WORD LIMIT – MAXIMUM 500 WORDS Using the AD/AS model, analsye how monetary policy may be used alleviate inflationary pressure. In your answer, comment on the UK’s monetary policy framework. Use wellannotated AD/AS diagrams and comment on monetary policies relationship with fiscal policy
Assume that as a result of the coronavirus and U.S. (Federal) Government policies to ameliorate or lessen the virus’ public health impact, the U.S. unemployment increases from 3.6% to 13.7% by May, 2020. As part of monetary and fiscal policies, however, beginning in the summer of 2020 the Fed purchases over $3.5 Trillion in U.S. government bonds and Federal Government transfers $5,000 to every U.S. adult over 18 years old (not in college…. sorry) financed by government debt. Then, as a part of its overall public health policies, the U.S. government begins to relax or loosen its previous travel and “shutter in” policies in the Spring 2021 so that people can now go to restaurants, movies or sporting events and the like more freely. Absent increases in the United States long run aggregate supply, the combined economic effects of such policies would most likely be:
Assume that as a result of the coronavirus and U.S. (Federal) Government policies to ameliorate or lessen the virus’ public health impact, the U.S. unemployment increases from 3.6% to 13.7% by May, 2020. As part of monetary and fiscal policies, however, beginning in the summer of 2020 the Fed purchases over $3.5 Trillion in U.S. government bonds and Federal Government transfers $5,000 to every U.S. adult over 18 years old (not in college…. sorry) financed by government debt. Then, as a part of its overall public health policies, the U.S. government begins to relax or loosen its previous travel and “shutter in” policies in the Spring 2021 so that people can now go to restaurants, movies or sporting events and the like more freely. Absent increases in the United States long run aggregate supply, the combined economic effects of such policies would most likely be: A. Lower GDP growth. B. Higher rates of inflation. C. Higher unemployment rates…
Determine how each of the following monetary or fiscal policy would shift the aggregate demand curve. Illustrate and explain the following effect. a. Assuming the economy is under full employment, the central bank receives news of a potential economic boom and has decided on a risky measure by conducting contractionary monetary policy. Illustrate and explain the effect of the policy using AD-AS curve.
Paranoia, the largest country in central Antarctica, receives word of an imminent penguin attack. The news causes expectations about the future to be shaken. As a consequence, there is a sharp decline in investment spending plans. a. Explain in detail the effects of such an event on the economy of Paranoia, assuming no response on the part of the central bank or the Treasury (Ms , T, and G all remain constant.) Make sure you discuss the adjustments in the goods market and the money market. b. To counter the fall in investment, the King of Paranoia calls for a proposal to increase government spending. To finance the program, the Chancellor of the Exchequer has proposed three alternative options: (1) Finance the expenditures with an equal increase in taxes (2) Keep tax revenues constant and borrow the money from the public by issuing new government bonds (3) Keep taxes constant and finance expenditures by printing new money Consider the three financing options and rank them…
In each of the following situations, state which (if any) curve (IS, LM, FE) will shift and in what direction (left or right). A. The central bank decreases the money supply. B. The government imposes tariffs on imported goods. C. In an effort to balance its budget, the government cuts spending on health care. D. The country’s currency appreciates.