PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Textbook Question
Chapter 15, Problem 8P
An economy is initially in recession. Using the AD-AS diagram, show the process of adjustment (LO2, LO4)
- a. If the Fed responds by easing
monetary policy (moving its reaction function down). - b. If the Fed takes no action. What are the costs and benefits of each approach, in terms of output loss and inflation?
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Suppose that, in an attempt to combat severe unemployment, the government decides to increase the amount of money in circulation in the economy. This monetary policy action ________(Decreases, Increases) demand for goods and services in the economy, leading to ________(Higher, Lower) prices for products. In the short run, the change in prices induces firms to produce ________(Fewer, morer) goods and services. This, in turn, leads to a ___________(Higher, Lower) unemployment level. Based on this analysis, the economy faces the following trade-off between inflation and unemployment: Higher inflation leads to _________(Higher, Lower) unemployment.
Consider the AD/AS model with a constant inflation rate. It is possible that the money supply is rising while interest rates are unchanged because...
a.
Declining interest rates cause the investment demand curve to shift to the left, which causes interest rates to rise back to their original level.
b.
The rising price level increases money demand, offsetting the impact of the rising money supply.
c.
The rising price level decreases money demand which pushes up interest rates.
d.
Declining interest rates cause the investment demand curve to shift to the right, which causes interest rates to rise back to their original leve.
e.
The money transmission mechanism does not apply in a situation of sustained inflation.
Which of the following is true of Advantages of the US implicit Nominal Anchor?
Select one:
a.
The Fed’s forward-looking behavior and stress on price stability also help to discourage overly expansionary monetary policy, thereby ameliorating the time consistency problem.
b.
It does not enable monetary policy to focus on domestic considerations.
c.
It relies on a stable money-inflation relationship.
d.
None of the above
Chapter 15 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
Ch. 15.A - Prob. 15A.1CCCh. 15 - Prob. 1RQCh. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - Prob. 4RQCh. 15 - Prob. 5RQCh. 15 - Prob. 6RQCh. 15 - Prob. 7RQCh. 15 - Why, in the absence of public beliefs that the...Ch. 15 - Prob. 9RQ
Ch. 15 - Prob. 10RQCh. 15 - Prob. 1PCh. 15 - For the economy in Problem 1, suppose that...Ch. 15 - Prob. 3PCh. 15 - Prob. 4PCh. 15 - For each of the following, use an AD-AS diagram to...Ch. 15 - Prob. 6PCh. 15 - Suppose that a permanent increase in oil prices...Ch. 15 - An economy is initially in recession. Using the...Ch. 15 - Prob. 9PCh. 15 - Prob. 10PCh. 15 - Prob. 11PCh. 15 - Prob. 15.1CCCh. 15 - Prob. 15.2CCCh. 15 - Prob. 15.3CCCh. 15 - Prob. 15.4CCCh. 15 - Prob. 15.5CCCh. 15 - Prob. 15.6CCCh. 15 - Prob. 15.7CCCh. 15 - Prob. 15.8CCCh. 15 - Prob. 15.9CCCh. 15 - Prob. 15.10CC
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