Macroeconomics
4th Edition
ISBN: 9780393602487
Author: Jones, Charles I.
Publisher: W. W. Norton & Company
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Question
Chapter 14, Problem 1E
(a)
To determine
Analyze the effect of shock in the IS/MP diagram.
(b)
To determine
Policy response recommend to Federal Reserve and effect of this policy response.
(c)
To determine
Policy response recommend to Federal Reserve when the economy is in severe financial crisis.
(d)
To determine
Explain the other policy response.
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Students have asked these similar questions
(a) Assume a temporary negative aggregate
supply shock strikes an economy. Please
explain how a central bank with a strict
inflation target will respond to this event?
Suppose the economy begins at full employment. Label this starting point as point "1."
Then, suppose that, due to increased instability in the financial markets, a decrease in investor and consumer confidence occurs. Show the effects on your graph and label the new equilibrium point "2."
Lastly, suppose the Federal Reserve wants the economy to return to full-employment as quickly as possible. Should the Fed intervene? If so, show the impact of successful monetary policy on your graph. Label this new equilibrium point "3."
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- 37. Supply-side economics is the school of thought that advocates the use of A) monetary policy to stimulate long-run aggregate supply. B) fiscal policy to stimulate long-run aggregate demand. C) monetary policy to stimulate short-run aggregate demand. D) fiscal policy to stimulate long-run aggregate supply.arrow_forwardA central bank carries out a contractionary open market operation.(a) What precisely does the central bank do in such an event?arrow_forwardWhat kind of problem is the U.S. economy facing? Give one possible reason why this problem may exist. State whether the Fed should use fiscal policy or monetary policy to address the situation. Given the stated policy in your answer to question #2, indicate what specific policy tool you would recommend as the appropriate course of action and why you are recommending this tool. Policy Implementation: Utilizing the figure above as your starting point, illustrate (graph) the macroeconomic situation of the United States after a successful implementation of the policy tool you’ve recommended. What are the effects on the macroeconomy on GDP and the aggregate price level?arrow_forward
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