Macroeconomics
13th Edition
ISBN: 9780134744452
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 14, Problem 12SPA
To determine
Identify the changes in the output gap and
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Explain what happens when an economy experiences contractionary monetary policy. Be sure lo discuss what happens to AD, real GDP, interest rates, the price level, the value of the Canadian dollar, and the real exchange rate. Be sure to use a graph to illustrate your answer.
138.) Austrian economists are worried about monetary policy that increases the money supply because
An increase in the money supply causes consumers to borrow more - potentially too much more - in the short-run (overconsumption)
An increase in the money supply reduces savings and increases future income available for new products
An increase in the money supply causes investors to invest in projects that have higher expected rates of return (malinvestment)
all of the above are correct
Federal Reserve & Open Market Operations
If the Fed shifts to a more restrictive monetary policy, and it utilizes the open market operations tool, describe what will happen to each of the following:
net exports
the prices of stocks
real GDP
Chapter 14 Solutions
Macroeconomics
Ch. 14.1 - Prob. 1RQCh. 14.1 - Prob. 2RQCh. 14.1 - Prob. 3RQCh. 14.1 - Prob. 4RQCh. 14.2 - Prob. 1RQCh. 14.2 - Prob. 2RQCh. 14.2 - Prob. 3RQCh. 14.3 - Prob. 1RQCh. 14.3 - Prob. 2RQCh. 14.3 - Prob. 3RQ
Ch. 14.3 - Prob. 4RQCh. 14.4 - Prob. 1RQCh. 14.4 - Prob. 2RQCh. 14.4 - Prob. 3RQCh. 14.4 - Prob. 4RQCh. 14.4 - Prob. 5RQCh. 14 - Prob. 1SPACh. 14 - Prob. 2SPACh. 14 - Prob. 3SPACh. 14 - Prob. 4SPACh. 14 - Prob. 5SPACh. 14 - Prob. 6SPACh. 14 - Prob. 7SPACh. 14 - Prob. 8SPACh. 14 - Prob. 9SPACh. 14 - Prob. 10SPACh. 14 - Prob. 11SPACh. 14 - Prob. 12SPACh. 14 - Prob. 13SPACh. 14 - Prob. 14SPACh. 14 - Prob. 15SPACh. 14 - Prob. 16APACh. 14 - Prob. 17APACh. 14 - Prob. 18APACh. 14 - Prob. 19APACh. 14 - Prob. 20APACh. 14 - Prob. 21APACh. 14 - Prob. 22APACh. 14 - Prob. 23APACh. 14 - Prob. 24APACh. 14 - Prob. 25APACh. 14 - Prob. 26APACh. 14 - Prob. 27APACh. 14 - Prob. 28APACh. 14 - Prob. 29APACh. 14 - Prob. 30APACh. 14 - Prob. 31APACh. 14 - Prob. 32APACh. 14 - Prob. 33APACh. 14 - Prob. 34APACh. 14 - Prob. 35APACh. 14 - Prob. 36APACh. 14 - Prob. 37APACh. 14 - Prob. 38APACh. 14 - Prob. 39APACh. 14 - Prob. 40APACh. 14 - Prob. 41APA
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- Question Help List the sequence of events in the transmission from a rise in the federal funds rate to a change in the inflation rate. When the Fed raises the federal funds rate, other short-term interest rates and the exchange rate _______. A. rise the same day or the next day, but it takes a few weeks through a few months for the quantity of money and supply of loanable funds to decrease B. rise within a few weeks or months but the long-run interest rate rises almost immediately C. and the long-term interest rate rise the same day or the next day, but it takes a few weeks for consumption expenditure and investment to decrease D. rise the same day or the next day, but it takes a few weeks through a few months for the quantity of money and supply of loanable funds to increase When the Fed raises the federal funds rate, consumption expenditure, investment, and net exports _______ and aggregate demand _______. A.…arrow_forwardIf the Fed shifts to a more restrictive monetary policy, and it utilizes the open market operations tool, describe what will happen to each of the following: real GDParrow_forwardBriefly explain the central bank policies of the countries below. USA (FED policy) - EU - UK - Turkey e Explain each of their policies and choose one that best matches with your opinion. Which country’s policy would you apply if you were the president of a country?arrow_forward
- Relevant knowledge is important because monetary policy affects all aspects of the economy as well as the functioning of the product and financial markets. Use a graph/chart to show the effects of a contractionary monetary policy to reduce inflation and move an economy back to potential real GDP.arrow_forwardBriefly outline two reasons for a central bank choosing to purse a contractionary monetary policy, and indicate whether you consider that these apply widely at the present time.arrow_forwardPlease discuss the impact of monetary policy tightening with regards to both unemployment and inflation with respect to both the short run and long run?arrow_forward
- The mandate of the South African Reserve Bank (SARB) states that “the Reserve Bank is required to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa”. There are several macroeconomic determinants that in many ways affect the outlook of the economy, such as inflation, growth, interest rates, unemployment and exchange rates. There has been an ongoing conversation among economists and politicians about the mandate of the SARB. Do you think that the mandate of the SARB should change? Support your view.arrow_forwardSuppose the velocity of money is stable for a year in Germany. If real GDP grows by 2%, what is the money increase in Germany ?arrow_forwardSuppose the economy is experiencing a recession. If the Federal Reserve enacts expansionary monetary policy, interest rates will likely Multiple Choice rise causing investment to increase. fall causing investment to increase. fall causing investment to decrease. rise causing investment to decrease.arrow_forward
- Discuss how the central bank increase the federal funds rate ripples through the different sectors of the economy.arrow_forwardPolicymakers believe that the economy is experiencing a recession, and they have agreed on the need for expansionary monetary policy. However, some economists suggest dropping the federal funds rate by 0.25%, while others think it needs to be decreased by 0.75%. a.Decision-making lag b.Effectiveness lag c.Recognition lag d.Implementation lagarrow_forwardHow do changes in interest rates impact consumer spending, business investment, and overall economic activity, and how does the central bank use interest rates as a tool of monetary policy? A) Changes in interest rates have no effect on economic activity. B) Lower interest rates typically encourage consumer borrowing and business investment, stimulating economic activity. The central bank uses interest rate adjustments as a tool to influence borrowing and spending. C) Higher interest rates boost economic activity by increasing consumer savings. D) Changes in interest rates only affect government spending.arrow_forward
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