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Exploring Economics

8th Edition
Robert L. Sexton
ISBN: 9781544336329

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BuyFindarrow_forward

Exploring Economics

8th Edition
Robert L. Sexton
ISBN: 9781544336329
Textbook Problem

Predict whether-unemployment Will increase or decrease as a result of each of the following monetary policies. If it is unanticipated? What if it is anticipated?

a. A reduction in the discount rate from 6 percent to 5.5 percent

b. An open, market sale by the Federal Reserve Bank

c. An increase in the required reserve ratio from 10 percent to 12 percent

To determine

(a)

To explain:

The effect of both unanticipated and anticipated effect of monetary policy on unemployment when the central bank lowers the discount rate from 6 percent to 5.5 percent.

Explanation

In case the central bank increases the money supply of the economy without prior intimation, people immediately react by raising their consumption expenditure. This will induce production level and employment thereby lowering the unemployment level of the economy...

To determine

(b)

To explain:

The effect of both unanticipated and anticipated effect of monetary policy on unemployment when the Federal Reserve Bank conducts an open market sale.

To determine

(c)

To explain:

The effect of both unanticipated and anticipated effect of monetary policy on unemployment when the required reserve ratio is increased from 10 percent to 12 percent.

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