Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
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Chapter 27.3, Problem 1YTE
To determine
Short run and long run effects of the contractionary
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The main argument against monetary policy is that it affects only nominal variables, not real variables. Explain this argument using the method below.
I. Explain and show on a graph the short-run and long-run equilibrium
changes in the AD/AS model from expansionary monetary policy. How
does this support an anti-monetary policy stance?
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Monetary policy is the macroeconomic policy laid down by the central bank of an economy.” In terms of the above statement, explain how monetary policy can be used to combat inflation.
Suppose the economy currently has an inflationary gap. The Fed engages in contractionary monetary policy. The impact of contractionary monetary policy will be to
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 the U.S. economy is initially at long run equilibrium, when there is an unexpected large decrease in government spending in the country.How does this impact the U.S. economy? (write out either "inflationary" or "recessionary" In response to this what monetary policy would the Fed employ? (write one of the following: "raise taxes", "lower taxes", "raise money supply", or "lower money supply"What is the most likely way the Fed will accomplish this change in the monetary policy? (write one of the following: "buy securities", "sell securities", "raise discount rate", "lower discount rate", or "legislation"This action by the Fed will cause interest rates to _______. (Write out "increase" or "decrease"The end result of the monetary policy is a shift of which curve in which direction. (Write out one of the following: "AD right", "AD left" "AS left", "AS right"arrow_forwardSuppose the economy is in long-run equilibrium, as shown on the following graph. Now suppose a wave of business pessimism reduces aggregate demand. 1. On the following graph, shift a curve or adjust the point to reflect the short-run effect of business pessimism. (Please use the image attached.) 2. If the Fed undertakes expansionary monetary policy, it can? cannot? return the economy to its original inflation rate and original unemployment rate.arrow_forwardSuppose the U.S. economy is initially at long run equilibrium, when there is an unexpected economic boom across Europe in the country.How does this impact the U.S. economy? (write out either "inflationary" or "recessionary" In response to this what monetary policy would the Fed employ? (write one of the following: "raise taxes", "lower taxes", "raise money supply", or "lower money supply"What is the most likely way the Fed will accomplish this change in the monetary policy? (write one of the following: "buy securities", "sell securities", "raise discount rate", "lower discount rate", or "legislation"This action by the Fed will cause interest rates to _______. (Write out "increase" or "decrease"The end result of the monetary policy is a shift of which curve in which direction. (Write out one of the following: "AD right", "AD left" "AS left", "AS right"arrow_forward
- Suppose the Fed decides to implement expansionary monetary policy. This will likely result in a _____ in the money supply and a _____ in interest rates. increase or decrease?arrow_forwardIf the Fed unexpectedly shifts to a more restrictive monetary policy, which of the following will most likely occur in the short run? a. An increase in inflation b. An increase in real GDP c. An increase in unemploymentarrow_forwardSuppose the U.S. economy is initially at long run equilibrium, when there is an unexpected economic recession across Europe in the country.How does this impact the U.S. economy? (write out either "inflationary" or "recessionary" In response to this what monetary policy would the Fed employ? (write one of the following: "raise taxes", "lower taxes", "raise money supply", or "lower money supply"What is the most likely way the Fed will accomplish this change in the monetary policy? (write one of the following: "buy securities", "sell securities", "raise discount rate", "lower discount rate", or "legislation"This action by the Fed will cause interest rates to _______. (Write out "increase" or "decrease"The end result of the monetary policy is a shift of which curve in which direction. (Write out one of the following: "AD right", "AD left" "AS left", "AS right"arrow_forward
- Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that, due to increased instability in the financial markets, a decrease in investor and consumer confidence occurs. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose the Federal Reserve wants the economy to return to full-employment as quickly 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_forwardusing a graph of aggregate demand and supply explain how monetary policymakers would respond to stabilize economic activity. Assume the economy starts at a long-run equilibrium.arrow_forward1).True or False: If the Fed undertakes expansionary monetary policy, it can retum the economy to its original inflation rate and original unemployment rate. 2).True or False: If the Fed undertakes expansionary monetary policy, it can return the economy to its original inflation rate and original unemployment rate. True Falsearrow_forward
- The NBER says the economy went from a peak in December 2007 to a trough in June 2009, until hitting a peak in the fourth quarter of 2019, then a trough in April 2020, and improving since then. Given this description of the dates of the business cycle, does the Fed’s policy of changing the discount rate make sense? Why or why not? Only typed answer and don't use chat gpt to solve the problemarrow_forwardCentral bankers in Widgetsa have decided that inflation is too high and contractionary monetary policy is needed. First, position LRAS where it would be if contractionary policy is needed. Then, show the short‑run results of this policy action by shifting the appropriate curves on the graphs. graphs in images. Select all of the actions that are contractionary policy choices the central bankers could use. decrease reserve requirements sell bonds to banks increase taxes decrease government spending raise the interest rate for last‑resort loansarrow_forwardThe time inconsistency of policy implies that a. what policymakers say they will do is generally what they will do, but people don't believe them because of current policy. b. when people expect that inflation will be low, it is easier for the Fed to increase output by increasing the money supply. c. people will believe Fed policy will be less inflationary than the Fed claims. d. what policymakers say they will do is usually not what they do, but people believe them anyway.arrow_forward
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