EBK ECONOMICS: PRINCIPLES AND POLICY
13th Edition
ISBN: 8220100605932
Author: Blinder
Publisher: Cengage Learning US
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Chapter 32, Problem 7DQ
To determine
Observation on the
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Hello, I need help with a macroeconomics question. Thank you in advance!
The answers are based on a short exerpt from the Federal Reserves press release from Feb 1, 2023 (attatchde below).
7. What do you expect to happen to the money supply?
8. What do you expect to happen to the inflation rate?
9. How would you expect all these decisions to affect employment in the economy?
10. How do the effects you found on 8 and 9 align with what the Fed was hoping to attain?
Hey, I need help with a macroeconomics problem. Thank you in advance!
The questions are based on a Feb 1, 2023 statement by the Federal Reserve (attatched below)
Effects mentioned in question:
- Inflation is expected to increase
- The Committee's choice to raise the target range for the federal funds rate and potentially keep on expanding it in the future recommends that they might be taking a more restrictive stance on monetary policy.
How do the effects you you previously found align with what the Fed was hoping to attain?
Fiscal and Monetary Policies
Nowadays, many Central Banks use target inflation in their monetary policy framework to achieve a stable and low level of inflation. Related to that, do you agree with the statement that says “by only focusing on achieving inflation target, the Central Bank will not be able to control the economy’s output fluctuation.” Explain your answer by using an appropriate theory, model/equation
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- The United States Federal Reserve has two mandates when setting monetary policy - keep annual inflation low (around 2-3%) and the unemployment rate low (around 5%). Typically, efforts to adjust the money supply to cause inflation to decrease causes unemployment to increase and vice versa. Now, imagine a situation where the United States faces high inflation and high unemployment (called stagflation, was issue in late 1970s). What do you think the Federal Reserve should do in this situation?arrow_forwardIn 1989 the Government made it legal for banks to offer interest on checking accounts. Before this it was illegal because it could create increased competitiveness between banks and maybe lead to bank failures. Using only the asset market show graphically what we would expect to happen to the quantity of money and the interest rates if it became legal for banks to offer interest bearing checking accounts. What would this do to the overall economy? Why? How would the Federal Reserve (using information from class) stabilize the economy?arrow_forwardIf a nation’s central bank, such as the US Federal reserve, believes the economy is headed toward a recession, what actions should it take?arrow_forward
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