EBK PRINCIPLES OF MACROECONOMICS
11th Edition
ISBN: 9780100665316
Author: CASE
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 4P
To determine
Graphical illustration of changes in aggregate
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
According to Keynes, increasing the money supply should lower interest rates in the economy. Milton Friedman notes that while it is true that expansionary monetary policy can lower interest rates, it is only part of the story.
a. Briefly explain under what conditions an expansionary monetary policy will indeed lower interest rates, both in the short and long run. A graph may help answering this question.b. Briefly explain under what conditions an expansionary monetary policy will increase interest rates. A graph may help answering this question.
Draw an aggregate demand and supply graph to show the effects of a decrease in interest rates in the short run and long run
Read the excerpt below and use it to answer the essay.“In some ways the state of the world economy is less hostile today than when (then) finance minister Tito Mboweni read his Budget Speech a year ago. Global economic growth rebounded significantly in 2021, after the decimation brought about by the Covid-19 induced recession in 2020.One of the outcomes of this was a sharp recovery in commodity prices, which has resulted in much higher-than-expected mining tax revenue in South Africa. This, in turn, has provided some welcome – albeit limited – breathing space on the fiscal front.The local economy is thought to have grown by more than 4.5 percent in 2021 – the highest annual increase in more than a decade. On balance, the finance minister should be able to meet spending demands (including the extension of the Sassa payments) for the year ahead, without widening the Budget deficit or resorting to punitive upwards adjustments to tax rates.”[Adapted from article by Professor André Roux]
•…
Chapter 12 Solutions
EBK PRINCIPLES OF MACROECONOMICS
Knowledge Booster
Similar questions
- The Bank of England will prevent members of its interest rate-setting committee from publishing individual opinions on the economy despite a review of its procedures calling for greater transparency. The Bank said a "collective forecast" will remain the centerpiece of the monetary policy committee's monthly reports, effectively barring members from explaining their own views on the likely path of economic growth, inflation, and unemployment. Critics of the Bank's policy said the Bank's governor, Sir Mervyn King, had rejected proposals for the public to see a wider range of views because he wanted to maintain a stranglehold on the direction of policy...In response, the Bank said it agreed some procedures were opaque and there was a need for clear lines of responsibility, but said that criticism of the monetary policy committee, which King chairs, were largely unfounded. Explain why then-Bank of England Governor Mervyn King would want to prevent members of the monetary policy committee…arrow_forwardThe following graph represents the money market in a hypothetical economy. As in the United States, this economy has a central bank called the Fed, but unlike in the United States, the economy is closed (that is, the economy does not interact with other economies in the world). The money market is currently in equilibrium at an interest rate of 3.5% and a quantity of money equal to $0.4 trillion, as indicated by the grey star.arrow_forwardThe graph shows an economy's aggregate demand and aggregate supply curves and potential GDP. Does this economy have an inflationary gap or a recessionary gap? How does this economy return to full employment? This economy has _______ gap. It returns to full employment as _______. A. an inflationary; the money wage rate rises B. a recessionary; potential GDP increases C. a recessionary; the money wage rate falls D. an inflationary; aggregate demand decreasesarrow_forward
- After a series of measures to remedy the mortgage crisis that has beset the US economy, Ben Bernanke, chairman of the Board of Governors of the Federal Reserve and his colleagues are once again looking at cutting the central bank’s key interest rate as they hope that lowering the interest rates will give the economy a boost by encouraging investors and consumers to borrow and spend (Associated Press, n. pag.). The Fed is looking at slashing the interest rate by a full percent however, many economist believe that this is not the appropriate remedy for economic conundrum (Gavin, n. pag). According to many analysts, the issue of the economy regarding the mortgage is the lack of confidence by both the lender and the borrower. Even as the Fed resorts to drastic interest cuts, the first time the central bank has cut a full percentage point in one shot since 1982, this provides little help if lenders are not loaning money out of fear they will not be repaid and the borrowers…arrow_forwardIn one or two sentences, explain why Keynesian economists believe that increasing the money supply will be effective at increasing aggregate demand in the short run.arrow_forwardYour Facebook feed shows a news article which says the Consumer Confidence Index has decreased. Having taken an economics class, you predict that spending in the economy will and aggregate demand will decrease; increase be unaffected; decrease decrease; decrease increase; increase increase; be unaffectedarrow_forward
- Suppose that the government believes the economy is not producing goods and services at its optimal level. In an attempt to stimulate the economy, the government increases the quantity of money in the economy by printing more money. This monetary policy the economy's demand for goods and services, leading to product prices. In the short run, the change in prices induces firms to produce goods and services. This, in turn, leads to a level of unemployment. In other words, the economy faces a trade-off between inflation and unemployment: Higher inflation leads to unemployment.arrow_forwardWhich of the following statements is true of the money supply? a) Increasing the money supply is a way of warding off an economic downturn. b) Decreasing the money supply is a way of warding off an economic downturn. c) The money supply is increased by lowering spending. d) The money supply is increased by raising taxes.arrow_forwardIf the Fed lowers interest rates, that is an example ofarrow_forward
- Explain how an increase in government expenditure can affect the goods market and moneymarket by taking the link between the two markets into account.arrow_forwardAccording to Keynes, when the price level rises, it causes the interest rate to do what? It causes the level of business spending to do what? a. It causes a decrease in the interest rate, as people adjust to higher prices and purchase less; business spending decreases as well. b. It causes a decrease in the interest rate, as people adjust to higher prices and purchase less; business spending goes up. c. It causes an increase in the interest rate, due to greater consumer demand for money to spend; business spending goes up as well. d. It causes an increase in the interest rate, due to a greater consumer demand for money to spend; business spending decreases.arrow_forwardYou read the following headline in the newspaper: "Lower tax rates have led to an increase in housing starts." Please assess if (a) this is fiscal or monetary policy (b) the policy is contractionary or expansionary (c) GDP will increase or decrease (d) Unemployment will increase or decrease This is blank1 - Word Answer Write your response here... (fiscal/monetary) policy. This policy is blank2 - Word Answer Write your response here... (expansionary/contractionary). It will lead to a(n) blank3 - Word Answer Write your response here... (increase/decrease) of GDP while unemployment will tend to blank4 - Word Answer Write your response here... (increase/decrease).arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning