EBK FOUNDATIONS OF ECONOMICS
8th Edition
ISBN: 8220103632225
Author: PARKIN
Publisher: PEARSON
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Chapter 33, Problem 4SPPA
To determine
To explain:
Whether the Fed faces a tradeoff in the short run.
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Suppose the Federal Reserve decides to raise its long-run target for the rate of inflation.
a. How does the Fed need to change its reaction function in order to do this?
b. How will this change affect output in the short run?
d. How does this change in profitability affect the short-run aggregate-supply curve?
e. If aggregate demand is held constant, how does this shift in the aggregate-supply curve affect the price level and the quantity of out-put produced?
f. Do you think this Fed chairman was a good appointment?
If the Federal Reserve wanted use an open market operation to combat a recession, what would they do, and what would its effect be?
The Federal Reserve expands the money supply by 5%.
Draw an aggregate supply/aggregate demand diagram to show the short run effect of this scenario. What happens to price and output? Which curve shifts? Which component of that curve accounts for the shift?
Chapter 33 Solutions
EBK FOUNDATIONS OF ECONOMICS
Ch. 33 - Prob. 1SPPACh. 33 - Prob. 2SPPACh. 33 - Prob. 3SPPACh. 33 - Prob. 4SPPACh. 33 - Prob. 5SPPACh. 33 - Prob. 6SPPACh. 33 - Prob. 7SPPACh. 33 - Prob. 8SPPACh. 33 - Prob. 9SPPACh. 33 - Prob. 10SPPA
Ch. 33 - Prob. 11SPPACh. 33 - Prob. 1IAPACh. 33 - Prob. 2IAPACh. 33 - Prob. 3IAPACh. 33 - Prob. 4IAPACh. 33 - Prob. 5IAPACh. 33 - Prob. 6IAPACh. 33 - Prob. 7IAPACh. 33 - Prob. 8IAPACh. 33 - Prob. 9IAPACh. 33 - Prob. 10IAPACh. 33 - Prob. 11IAPACh. 33 - Prob. 12IAPACh. 33 - Prob. 1MCQCh. 33 - Prob. 2MCQCh. 33 - Prob. 3MCQCh. 33 - Prob. 4MCQCh. 33 - Prob. 5MCQCh. 33 - Prob. 6MCQCh. 33 - Prob. 7MCQ
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- Suppose the Federal Reserve (the US central bank) increases the money stock. Create a graph that explains the effect of the Fed's expansionary monetary policy in the Short Run.arrow_forwardAssume the United States economy is operating at a recession. a. Using a correctly labeled aggregate demand and supply graph, show Full employment output (yf) Current output (Q1) Current price level (PL1) b. What are The Fed’s three policy choices for how to get the US back to full employment? c. Using a correctly labeled graph of the money market, show how the open market operation you identified in #2 will affect the interest rate in the short run.arrow_forwardAn economy begins in long-run equilibrium. a. Consider the formulation of an oil cartel. Illustrate and explain how this affects prices and output over time. b. If the goal of the Fed is to stabilize the output, what should the Fed do with the money supply in response to this change? Illustrate and explain.arrow_forward
- What are the goals of economic policy? Describe each briefly. What policy options does the government and the Feds have at their disposal to counter. Economic recession and inflation. Describe and list each brieflyarrow_forwardIf the Fed lowers interest rates, the value of the US dollar will___ which will lead do a(n)____ in spending on US goods. a) increase, decrease b) decrease , decrease c) decrease, increase d) increase, increasearrow_forwardAssume that an economy is experiencing an economic contraction and the government decides to reduce taxes and increase government spending to stimulate the economy. By the way, Central Bank keeps money supply constant. i) Evaluate the effect of this policy on the a) Interest Rate , b)Money Demand (in the SHORT-RUN.) Explain and show your answer on the graph. ii)Evaluate the effect of this policy on output and price Level (in the LONG-RUN.) Explain and show your answer on the graph. Note : In figures, please label the axis and show the changes on the graphs using arrows.arrow_forward
- If 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_forwardDescribe the open market operation of the Fed. What open market actions would the Fed take to expand the economy? Explain the mechanics of how this happens.arrow_forwardSuppose the economy is initially at long run equilibrium, when there is an unexpected decrease in oil prices in the country.How does this impact the 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
- Read the event The Federal Reserve raises reserve requirements. What would likely result from this event? A. An economy would see a slight decrease in aggregate demand. B. Interest rates on loans decline. C. Consumer demand would increase thus increasing prices. D. Inflation would reach levels that are acceptable for full employment.arrow_forwardIt is time to take control of the Federal Reserve, which controls the U.S. money supply (M). In this chapter, we are thinking only about the “long run,” so real GDP (Y ) is out of the Fed’s control, as is velocity (v). The Fed’s only goal is to make sure that the price level (P) is equal to 100 each and every year. That is just known as “price stability,” one of the main goals of most governments. Fill in the missing values of M for the table. Year M v = P Y 1 25,000 2 100 500 2 4 100 500 3 4 100 400 4 4 100 200 5 2 100 400 6 1 100 600 Year 2, M = Year 3, M = Year 4, M = Year 5, M = Year 6, M =arrow_forwardi need help with the last question Suppose the economy is initially at long run equilibrium, when there is an unexpected increase in firm investment in the country.How does this impact the economy? (write out either "inflationary" or "recessionary" inflationary 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"lower money supplyWhat 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"sell securitiesThis action by the Fed will cause interest rates to _______. (Write out "increase" or "decrease"increaseThe 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
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