Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 14, Problem 6PA
(a)
To determine
The impact over economy with anticipated and unanticipated changes in money supply.
(b)
To determine
The impact of policy irrelevance proposition.
(c)
To determine
The impact of
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Students have asked these similar questions
Which of the following is accurate?
Select one:
a. Monetary policy is neutral in both the short run and the long run.
b. Monetary policy has profound effects on real variables in the long run, but is neutral in the short run.
c. Monetary policy has profound effects on real variables in both the short run and the long run.
d. Though monetary policy is neutral in the long run, it may have effects
real variables in the short run.
Suppose that changes in bank regulations expand the availability of credit cards so that people need to hold less cash.
a. How does this event affect the demand for money?
b. If the Fed does not respond to this event, what will happen to the price level?
c. If the Fed wants to keep the price level stable, what should it do?
(Please show me the graphs. Explanations do not need to be specific.)
Question 7. Using the models learned in class, graphically illustrate and explain the impact of the
following policy and explain your answer.
Suppose the Bank of Canada reduces the money supply by 5%.
a. What happens to the aggregate demand curves?
b. What happens to the level of output and the price level in the short run and in the long
run?
c. What happens to the real interested rate in the short run and in the long run?
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- Hello, I need help with a macroeconomics question. Thank you in advance! The answers are based on a short exerpt from the Federal Reserves press release from Feb 1, 2023 (attatchde below). 7. What do you expect to happen to the money supply? 8. What do you expect to happen to the inflation rate? 9. How would you expect all these decisions to affect employment in the economy? 10. How do the effects you found on 8 and 9 align with what the Fed was hoping to attain?arrow_forwardFor each of the following, please explain each step and show it in the graph! c) Assume an economy is at full employment, but then supply falls in the short run. What will happen in the long run if the policymakers do nothing and what will happen in the long run if the policy makers influence aggregate demand with monetary policy to drive back to the natural output?arrow_forwarda) Explain what happens to Money Demand when each of the following occurs: i, incomes rise; ii. the interest rate rises. b. Use the money market to explain why the aggregate demand curve slopes downward.arrow_forward
- a. Explain what happens to Money Demand when each of the following occurs: i. incomes rise; ii. the interest rate rises. b. Use the money market to explain why the aggregate demand curve slopes downward. Pa... + ...arrow_forwardAs you have learned in Unit 8 (this week), monetary and fiscal policy play important roles in economic stimulation and or stabilization. In this regard: a. When is it appropriate to use monetary and fiscal policy to stimulate or stabilize the economy? b. When is it inappropriate to use monetary and fiscal policy to stimulate or stabilize the economy? c. What specific fiscal policy tools would you use to stimulate aggregate demand and how? d. What specific monetary policy tools would you use to stimulate aggregate demand and how? e. What is your conclusion, should policymakers use the monetary and or fiscal policy to stimulate aggregate demand? Explain briefly.arrow_forwardSuppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must a. decrease the money supply, which will move output back towards its long-run level. b. decrease the money supply, which will move output farther from its long-run level. c. increase the money supply, which will move output back towards its long-run level. d. increase the money supply, which will move output farther from its long-run level.arrow_forward
- Which 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_forwardA. Discuss, with the help of diagrams, Friedman’s argument concerning the short and long-run effects of an increase in the money supply. B. Now discuss how his argument can be extended to study short and long-run effects of changes in the growth rate of a growing money supply. Both parts please.arrow_forwardSuppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that the minimum wage increases to $15 in the United States, which affects the entire labor market and increases the cost of production. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose the Federal Reserve wants to keep prices in the economy as low as possible. Should the Fed intervene? If so, show the impact of successful monetary policy on your graph. Label this new equilibrium point "3."arrow_forward
- When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the long-run effects of an increase in money supply? a)The price level decreases, but the quantity of money demanded increases b)The price level and the quantity of money demanded increases c)The price level and the quantity of money demanded decreases d)The price level increases, but the quantity of money demanded decreasesarrow_forwardExplain how an increase in a price level will affect the demand for money and the aggregate demand. Use relevant graphs to support your answer.arrow_forward(a) Suppose that, in a liquidity trap, bank reserves are less liquid than government debt. If the central bank conducts an open market sale of government debt, what will be the effect on the price level? Use a diagram, explain your results. (b) Suppose that there is a decrease in the price of housing, which the central bank judges is a temporary asset price decrease. In the New Keynesian model, determine the central bank's optimal response to this asset price increase, using diagrams. (c) Suppose initially that inflation is at the central bank's target and the output gap is zero. Then, government spending goes up. Determine, with the aid of diagrams, how the degree of price stickiness affects the central bank's optimal response and explain your results.arrow_forward
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