You are an economic adviser using the Fed model to analyze the economy. What is the effect of a fall in consumer spending on the economy? a rise in the real interest rate, falling output, and unexpected deflation a rise in the real interest rate, rising output, and unexpected inflation an unchanged real interest rate, falling output, and unexpected deflation a fall in the real interest rate, rising output, and unexpected inflation

Q: Suppose equilibrium GDP is less than full-employment output and the economy is in a recession. What…

A: GDP refers to the total value of finished goods and services that produced within the economic…

Q: Suppose the U.S. economy is initially at long run equilibrium, when there is an unexpected large…

A: Since you have posted a question with multiple parts, we will solve only the first part. To get…

Q: Assume the fiscal authority reduces taxes and, at the same time, the central bank engages in a…

A: Fiscal policy: fiscal policy refers to the policy used by the government to regulate money supply in…

Q: If the economy is able to self-correct from a negative GDP gap, why might the Fed wish to intervene…

A: A self-correcting economy refers to one that has the ability to stabilize the market without…

Q: When using the Fed model to diagnose the economy, if the output gap has shifted without much…

A: In an economy, real interest rate is the rate at which the value of money changes over time,…

Q: Describe the Fed’s monetary policy actions over the course of the  2020 year and  identify whether…

A: Considering the impacts of COVID-19 on financial action and on dangers to the viewpoint, the FOMC…

Q: Suppose the U.S. economy is initially at long run equilibrium, when there is an unexpected large…

A: When the U.S economy is in long-run equilibrium and the government spending falls unexpectedly, the…

Q: What is the key assumption underlying the Fed’s abilityto control the real interest rate?

A: The interest rate is the rate charged by the lender on the asset lent by them or received by…

Q: Assume that the Fed engages in a policy action that drives the economy above full employment. Use…

A: Fed, central bank controls money supply in the economy. It undertakes monetary policy to affect…

Q: Assume that a decrease in investment expenditures drives the economy falls below full employment.…

A: In Keynesian economics, the economy is said to be in equilibrium at a point where the aggregate…

Q: explain why does The Fed have a better chance of fixing a recession caused by a drop in spending…

A:

Q: Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run,…

A: Suppose the fed doubles the growth rate of the quantity of money in the economy . We know that in…

Q: did well during the mid-2000s but did not do so well in during and immediately after the recession…

A: Housing market is affected by both demand and interest rate.

Q: Suppose the Federal Reserve decreases the money stock. Create a graph that explains the effect of…

A: Monetary policy is the central bank's policy of money supply and interest rate to influence the…

Q: The phenomenon that interest rates may be so low that increases in the money supply will have no…

A: Monetary incapacitation refers to the situation when a person cannot function normally in terms of…

Q: According to modern Keynesian theory, an increase in the money supply will   reduce interest rates…

A: Answer: According to Keynes, the money supply is capable of influencing the output (i.e real…

Q: Which of the following best describes the uncertian consequences of the policy that the FED plans to…

A: Answer: There occurs a trade-off between inflation and unemployment in the short-run. If the fed…

Q: What happens to the money supply when the Fed buys government bonds? According to the theory of…

A: MONEY SUPPLY Money supply refers to the volume of currency regulated in the economy during a period…

Q: In order to combat inflation, the Fed will ________ the federal funds rate thereby ________ the…

A: In order to combat inflation, the fed will increase the rate of federal funds. Which results in less…

Q: Explain how the RBA sets a target cash rate to conduct expansionary monetary policy to move an…

A: The cash rate is also referred to as a monetary instrument. In Australia the interest rate is called…

Q: Fill in the blanks in the following statements to explain when (business cycle) the Fed will use…

A: The inflation rate is the rate at which the prices of products and services increases in an economy.

Q: Assume the economy is currently in Recession and the Federal Reserve has chosen to use the required…

A: Economy is going through a recession path and Federal Reserve can able to solve the situation by…

Q: What happens when the Fed begins to taper purchases? (a) The supply of bonds increases, price rises…

A: When Fed taper (gradual slowing) purchases it decreases supply of bonds. Now given the demand if…

Q: Occasionally, the Federal Open Market Committee (FOMC) sets a policy designed to “track” the…

A: The FOMC is pursuing a policy of maintaining the interest rate (r) constant. It is following an…

Q: Suppose the U.S. economy is initially at long run equilibrium, when there is an unexpected economic…

A: Since you have posted a question with multiple parts, we will solve only the first part. To get…

Q: Suppose that government spending is increased at the same time when an autonomous monetary policy…

A: The aggregate supply is the total amount of services and commodities that firms in an economic plan…

Q: Fill in the blanks in the following statements to explain when (business cycle) the Fed will use…

A: Fed uses contractionary monetary policy during expansion and expansionary monetary policy during…

Q: Suppose a wave of negative “ animal spirits” overruns the economy, and people become pessimistic…

A: Keynes used the term “Animal Spirits” in his book, The General Theory of Employment, Interestand…

Q: The former chairman of the Federal​ Reserve, Alan​ Greenspan, used the term​ "irrational exuberance"…

A: If the economy grows too fast, asset bubbles form which might go bust and the economy may crash.…

Q: Suppose a computer virus disables the nation's automatic teller machines, making withdrawals from…

A: The demand for money increases in the economy. This will shift the MD curve rightwards. Also, the…

Q: Suppose the Fed wants to set the real interest rate 1 percentage point lower than the inflation…

A: Schedule for inflation and real interest rates based on Fed targets -

Q: The fed controls the prime interest rate? True or False

A: Fed is the central bank of the Unites States of America.  The functions of Fed includes: (i)…

Q: Suppose the U.S. economy is initially at long run equilibrium, when there is an unexpected economic…

A: Since you have posted a question with multiple parts, we will solve only the first part. To get…

Q: At their last meeting, the Fed indicated that it would begin reducing its purchases of longer-term…

A: Treasuries are government securities. These securities are for short term as well as for long term.…

Q: The Fed can directly affect long-term interest rate by setting the policy rate target range. True or…

A: In the United States, Federal Reserve is the highest monetary authority to make decisions related…

Q: When the United States economy goes through a period of extended growth, the economy is said to be…

A: The inflation is the increase in the general price level of goods and services. Some level of…

Q: An increase in interest rates by the Fed based on a given and unchanged policy reaction function…

A: An increase in interest rate without the policy change would cause a movement on the aggregate…

Q: When the Fed makes open-market sales bank   A deposits increase and lending decreases. B deposits…

A: The Federal Reserve (Fed) is the central bank of United States. The central banks are the apex bank…

Q: The only one interest rate in the economy the Fed can control directly is the FFR. True False

A: Federal Fund Rates (FFR): It is the interests that the commercial banks charges to lend and borrow…

Q: Suppose the economy is in long-run equilibrium, as shown on the following graph. Now suppose a wave…

A: When there is business pessimism in the economy then the spirit will be negative and hence aggregate…

Q: The fed can sell treasury bills, also known as T-bills. True or false

A: The monetary policies are controlled by the central bank of the country and fiscal policies are…