Principles of Macro. (Looseleaf)-With Access (Custom)
11th Edition
ISBN: 9781269334082
Author: CASE
Publisher: PEARSON
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Chapter 13, Problem 4P
To determine
Identify the effects of
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give your recommendation on monetary policy as if you were President of the Dallas Federal Reserve Bank. Should interest rates be raised, lowered, or stay the same (neutral position)? Support your decision with specific findings from the report.
According to the Keynesian model, if the Fed wanted to reduce inflationary pressures, which of the following combinations of policies should it pursue?
Group of answer choices
increase the reserve requirement, increase the discount rate, and sell government securities
increase the reserve requirement, increase the discount rate, and buy government securities
increase the reserve requirement, decrease the discount rate, and sell government securities
decrease the reserve requirement, decrease the discount rate, and buy government securities
Identify each item as Fiscal or Monetary Policy, or Both
Chapter 13 Solutions
Principles of Macro. (Looseleaf)-With Access (Custom)
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- Which of the following statements is true about joint optimal fiscal and monetary policy? "Despite the need to raise government revenue in non-lump-sum manner:" (a) obtaining economic efficiency along the consumption—leisure margin, is a goal more important in optimal macroeconomic policy, more so than achieving efficiency along the consumption-money margin. (b) obtaining economic efficiency along the consumption—money margin, is a goal more important in optimal macroeconomic policy, more so than achieving efficiency along the consumption-leisure margin. (c) obtaining economic efficiency along the consumption—money margin, is a goal equal as important in optimal macroeconomic policy, as achieving efficiency along the consumption-leisure margin. (d) None of the above.arrow_forwardAccording to modern Keynesian theory, an increase in the money supply will reduce interest rates and increase aggregate demand without unintended consequences. reduce interest rates and decrease aggregate demand without unintended consequences. increase interest rates and increase aggregate demand without unintended consequences. increase interest rates and decrease aggregate demand without unintended consequences.arrow_forwardWhich of the following statements is false? It might sometimes make sense for a government to combine an expansionary monetary policy with an expansionary fiscal policy. If spending is very responsive to changes in interest rates, and the demand for money is interest inelastic, then monetary policy tends to be more powerful than fiscal policy. It would never make sense for a government to combine an expansionary monetary policy with a contractionary fiscal policy. If spending is not very responsive to changes in interest rates, and the demand for money is interest elastic, then fiscal policy tends to be more powerful than monetary policyarrow_forward
- “The Bank of Zambia’s Monetary Policy Committee has kept the monetary policy rate unchanged for over a year despite inflation being consistently above the 6-8% target range”. DISCUSSarrow_forwardIf the Fed indicates that inflation is likely to be a concern in the near future, the public would expect that it might Lower interest rates at its next meeting Not change interest rates at its next meeting Raise interest rates at its next meeting Lower interest rates before its next meeting Decrease the federal budget deficit at its next meetingarrow_forwardThis question below addresses whether monetary policy should be discretionary or be implemented following a set of rules. Which of the following statements argues against discretionary monetary policy? Check all that apply. -It is impossible for a policy rule to consider all the possible scenarios and specify, in advance, the right policy response. It is better to appoint qualified individuals who will respond to any situation as best they can. -Discretionary monetary policy may lead to a higher sacrifice ratio because the public is not confident that the Federal Reserve will keep inflation low. -Monetary rules reduce the flexibility of the Federal Reserve. -The Federal Reserve may use monetary policy to affect the outcome of elections.arrow_forward
- Suppose three economies are hit with the same negative supply shock. In country A, inflation initially rises and output falls; then inflation rises more and output increases. In country B, inflation initially rises and output falls; then both inflation and output fall. In country C, inflation initially rises and output falls; then inflation falls and output eventually increases. What type of stabilization approach did each country take? The answer choices for each country are: Stabilize inflation, stabilize output, or do nothingarrow_forwardif the current unemployment rate exceeds the natural rate the fed should increase the federal fund rate true or falsearrow_forwardThe Tools available when using fiscal policy are Interest Rates The Federal Reserve Open Market Operations Taxing policy and the required reserve None of the abovearrow_forward
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