Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
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Question
Chapter 27, Problem 6SQ
To determine
The natural rate hypothesis.
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Students have asked these similar questions
A. What assumptions did Thomas Sargent make when he claimed that inflation is always and everywhere a fiscal phenomenon?"
B. Why is it appropriate in the book's short-term model for the author to use the Phillips Curve as an Aggregate Supply curve? Does it capture the working of the labor market as well as an AS curve based, say, on sticky wages?
C. Provide an example of the book's short-run model being based on "microfoundations."
Statement 1:If inflation rate is within the target, policy change in necessary. Statement 2: If inflation rate differs from the target, policy change is necessary. *a. both statements are falseb. only statement 2 is correctc. none of the choicesd. both statements are correcte. only statement 1 is correct
4. Let ́s suppose the economy needs to be more dynamic. Propose a policy that will achieve low levels of inflation without provoking too much unemployment:
4.a. How effective is going to be this policy under the general model of AD-AS with rigidities in the labor market. Explain and use graphs.
4.b. If the AS is based on expectations over inflation, when this policy can be fully effective? Explain and use graphs.
Chapter 27 Solutions
Economics For Today
Ch. 27.3 - Prob. 1YTECh. 27.6 - Prob. 1YTECh. 27 - Prob. 1SQPCh. 27 - Prob. 2SQPCh. 27 - Prob. 3SQPCh. 27 - Prob. 4SQPCh. 27 - Prob. 5SQPCh. 27 - Prob. 6SQPCh. 27 - Prob. 7SQPCh. 27 - Prob. 8SQP
Ch. 27 - Prob. 9SQPCh. 27 - Prob. 1SQCh. 27 - Prob. 2SQCh. 27 - Prob. 3SQCh. 27 - Prob. 4SQCh. 27 - Prob. 5SQCh. 27 - Prob. 6SQCh. 27 - Prob. 7SQCh. 27 - Prob. 8SQCh. 27 - Prob. 9SQCh. 27 - Prob. 10SQCh. 27 - Prob. 11SQCh. 27 - Prob. 12SQCh. 27 - Prob. 13SQCh. 27 - Prob. 14SQCh. 27 - Prob. 15SQCh. 27 - Prob. 16SQCh. 27 - Prob. 17SQCh. 27 - Prob. 18SQCh. 27 - Prob. 19SQCh. 27 - Prob. 20SQ
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- Suppose that a new Central Bank’ chair is appointed and his/her approach to monetary policy is that he/she only cares about increasing employment since the inflation rate is remain low and stable. He/she wants to prioritize more on using accommodative monetary policy to promote employment. How would you expect the monetary policy curve to be affected, if at all?arrow_forwardIn a Keynesian framework, using an AD/AS diagram, which of the following government policy choices offer a possible solution to recession? Which offer a possible solution to Inflation? A tax Increase on consumer income. A surge in military spending. A reduction in (axes for businesses that Increase investment. A major Increase in what the U.S. government spends on healthcare.arrow_forwardOne of the business cycle factsis that “the nominal money supply is a pro-cyclicaland leading variable”. Traditional Keynesian theory explains this fact with the transmissionmechanism of money. The New Classical approach uses misperceptions theory explanation. TheRBC theorist try to explain the relationship with reverse causation theory.a. According to Keynesian theory, under what conditions money would be effective to havereal effects? If money is effective to have real effects, explain the transmission mechanism thatshows the causation from money to output.b. According to the “misperceptions theory of business cycles”, how and why an increase innominal money supply causes an increase in real output in the short run by affecting thebehavior of producers? Does your answer change if the monetary shock is anticipated orunanticipated? Explain by using the IS-LM-FE and AD-AS Frameworks.c. Explain how reverse causation could occur and what is the explanation from RBC theoristthat money is…arrow_forward
- Question 2:a. Give one example of a demand shock (a change that shifts demand curve) and oneexample of supply shock (a change that shifts supply curve) that may lead to an inflationarygap (positive output gap).b. How would the economy eliminate the inflationary gap and return to its long runequilibrium without any interventions from the policymakers (self-correcting mechanism)?arrow_forwarda. The response of Central Bank to shocks depends on its goal. Suppose Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output and employmentat their natural levels. Explain with the help of graph how each Central Bank would respond to the following. i. An exogenous decrease in the velocity of money. ii. An exogenous increase in the price of oil.arrow_forwardAsap plz Assuming the economy has a strong-form market and that the current economy has reached its long-term equilibrium with optimal inflation rate π = 3 (%) and the aggregate output y = 10 (£bil). The economy has the following AD-AS curves: I. AD Curve: π = 10-0.7y II. AS Curve: π = 1+0.2y III. LRAS Curve: y = 10 Now, the central bank intends to use monetary policy to boost economic growth and suggest the government to increase £1bil in government expense. You are a researcher and now reviewing effect increased expense. a. What is the short-term equilibrium of π and y? b. What is the long-term equilibrium of π and y? c. What is the new AS curve? Do you think central bank’s suggestion on monetary policy effective?arrow_forward
- Which of the following reduces the effectiveness of inflation targeting as a means of reducing cyclical fluctuations in the economy? A) People increasingly believe that the rate of inflation affects the level of real output. B) Oil prices become more stable. C) Goodhart's Law, as applied to inflation targets, breaks down. D) The trade-off between inflation and unemployment (and output) virtually disappears.arrow_forward“I do not think it is an exaggeration to say history is largely a history of inflation, usuallyinflations engineered by governments for the gain of governments.” F.A Hayek.“The government solution to a problem is usually as bad as the problem and very oftenmakes the problem worse.” M. Friedman“Every government intervention [in the marketplace] creates unintended consequences,which lead to calls for further government interventions.” Ludwig von Misesa) The above quotes criticizes government interventionism to the economy. But,Keynesians believe that there is no way to stabilize the markets other than throughgovernment intervention (spending, taxes, planning and regulation). By givingreferences to the end of the Keynesian Era, explain why government interventionismhas lost its popularity after the 1970s.arrow_forwardWhat happens when a central bank pursues inflation targeting? A. The policy actions that central banks use to achieve the inflation target are kept secret. B. With inflation targeting, the United States would be more successful at achieving low and stable inflation. C. Many central banks achieve their inflation target at the expense of extremely high unemployment. D. The bank announces an explicit inflation target and the public is confident the bank's policy will achieve that target.arrow_forward
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