Macroeconomics: Principles and Policy (MindTap Course List)
13th Edition
ISBN: 9781305280601
Author: William J. Baumol, Alan S. Blinder
Publisher: Cengage Learning
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Chapter 17, Problem 2DQ
To determine
To Comment: On the statement which says that there is no need of fiscal and
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Explain whether policy makers should be more concerned about the economy going into a recession or facing high inflation and why.
Discuss whether it is possible for policymakers to trade off more inflation for higher output in the short run and the long run. Explain from the new classical and new Keynesian perspective.
Explain in details how high inflation can lead to a recession in several ways.
Chapter 17 Solutions
Macroeconomics: Principles and Policy (MindTap Course List)
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- Why do some economists believe that it may be necessary to live with a certain amount of inflation in order to keep the unemployment rate at a low level?arrow_forwardWhy might a Keynesian Economist argue that a Federal Reserve policy alone will not get us out of a recession? ( explain in full response)arrow_forwardInflation in Theoretica(pretend country) is currently below the target range of its central bank. What does this tell you regarding Theoretica’s likely output gap? Illustrate it using an AS-AD diagram, and briefly explain your diagramarrow_forward
- Explain what kind of monetary policy and fiscal policy tools can be used to fight against inflationarrow_forwardWhich of the following will most likely cause a change in the natural rate of unemployment? Select one: a. expansionary fiscal policy b. contractionary monetary policy c. contractionary monetary policy d. none of the other alternatives is correct e. expansionary monetary policy.arrow_forwardHow would you explain the logic of a potential short run trade-off between unemployment and inflation to the President? In other words, why might there be an inverse relationship between unemployment and inflation over the short run when the economy is very close to full employment and no technological advances are occurring simultaneously?arrow_forward
- could policy makers achieve a permanently lower level of unemployment if they were prepared to accept a slightly higher average rate of inflationarrow_forwardSuppose that actual output is $120 billion and potential (full-employment) output is $156 billion. What is an output gap in this hypothetical economy? Based on your estimate of the output gap, would you expect the unemployment level to be higher or lower than usual?arrow_forward
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