Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 12, Problem 3QQ
To determine
The impact of constant interest rate when the government purchases increases.
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Students have asked these similar questions
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
What happens when the Fed begins to taper purchases?
(a) The supply of bonds increases, price rises and interest rates rise
(b)Demand for bonds decreases, prices fall, and interest rates rise
(c) The supply of bonds decreased, prices fall, and interest rates rise
When the Fed lowers the federal funds rate target and buys bonds, what happens to short-term interest rates and the monetary base?
A. short-term interest rates fall; the monetary base increases
B. short-term interest rates fall; the monetary base decreases
C. short-term interest rates rise; the monetary base increases
D. short-term interest rates rise; the monetary base decreases
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Similar questions
- 1. If LRAS = $500 billion, RGDP = $700 billion, and MPC = .8, then what should the Fed do? Be specific and list all three options. Also draw and label both the current situation and what would occur as the government impacted the economy through their actions. 2. What are the impacts in the short run of the above actions on the following: the market interest rate, the quantity of money demanded, investment spending, aggregate demand, potential output, the price level, and equilibrium RGDP.arrow_forwardWhat happens to the aggregate demand curve when the Fed reduces the money supply? a. It shifts leftward, raising real GDP and the price level b. It shifts leftward, lowering real GDP and the price level c. It shifts rightward, raising real GDP and the price levelarrow_forwardWe would expect that the level of income that would equate total demand for and total supply of money would be: (a) roughly at the level of the Fed’s interest rate target; (b) lower the lower the interest rates; (c) equal to the level that would equate realized investment with realized savings; (d) higher the lower the interest rate (or lower the higher the interest rate)arrow_forward
- Suppose the government increases expenditures while holding taxes the same. This will increase deficits or decrease surpluses Assume the increase in government expenditures, from above, occurs As a result of the increase in government expenditures, the O A money supply curve will shift right. OB. money demand curve will shift loft. C. money demand curve will shift right. D. The money supply curve will shift left.arrow_forwardSuppose the Fed wants to set the real interest rate 1 percentage point lower than the inflation rate. Nominal interest rates cannot fall below zero. A. Graph the MP curve for inflation values between -2% and 2%,.arrow_forward7. 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. (MP, 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 the expenditures by printing new money Consider the three financing options and rank them from…arrow_forward
- TRUE FALSE The more the Fed accommodates shocks to money demand, the larger the (government) spending multiplier.arrow_forwardSuppose government spending increases. Would the effect on aggregate demand be larger if the central bank held the money supply constant in response or if the central bank chose to maintain a fixed interest rate? Illustrate and explainarrow_forward
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