Suppose the Central bank announces today a change in monetary policy: it is increasing target inflation from 2% to 3%. Using the 3-equation model under adaptive expectations, explain how the economy adjusts to the change in monetary policy. (you need to use the graph, and explain in detail how the economy reacts to this change).
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Suppose the Central bank announces today a change in
(you need to use the graph, and explain in detail how the economy reacts to this change).
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- In the model SIM of chapter 3 of the book of Godley, Wynne, and Marc Lavoie. 2012. Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth. 2nd ed. 2012 edition., starting from a stationary state simulate the effect of an increase in government expenditure under four variations of the model: a model with simple adaptive expectations Y De = Y D−1, Discuss the trajectory of output from the original stationary state to the new one. G_D is Government goods demand, and theta is Tax rate,(a) Suppose that, in a liquidity trap, bank reserves are less liquid than government debt. If the central bank conducts an open market sale of government debt, what will be the effect on the price level? Use a diagram, explain your results. (b) Suppose that there is a decrease in the price of housing, which the central bank judges is a temporary asset price decrease. In the New Keynesian model, determine the central bank's optimal response to this asset price increase, using diagrams. (c) Suppose initially that inflation is at the central bank's target and the output gap is zero. Then, government spending goes up. Determine, with the aid of diagrams, how the degree of price stickiness affects the central bank's optimal response and explain your results.Assume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers increases, but producers are not affected. Which of the following is most likely to be the equilibrium change? a The equilibrium will be at point C before the change in expectations and point A after the change b The equilibrium will be at point A before the change in expectations and point B after the change c The equilibrium will be at point A before the change in expectations and point C after the change d The equilibrium will be at point E before the change in expectations and point C after the change
- Show using a graph how the following shocks would affect equilibrium output. (Which parameters in the Keynesian model change? How does that shift the expenditure schedule? What happens to output as a result?) (a) The housing market collapses (b) Interest rates rise (c) The US dollar depreciates (gets weaker) relative to the Euro (d) Consumer confidence rises in Canada (Hint: use one picture to show what happens to Canada, then another to show how this affects the US economy)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/equationSuppose 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."
- According to rational expectations economists, as a result of an increase in aggregate demand due to an expansionary monetary policy, real output and employment would not increase because said policy would be offset by higher prices and Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.In the model SIM of chapter 3 of the book of Godley, Wynne, and Marc Lavoie. 2012. Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth. 2nd ed. 2012 edition., starting from a stationary state simulate the effect of an increase in government expenditure under four variations of the model: the simple deterministic model of the book. Discuss the trajectory of output from the original stationary state to the new one.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?
- Which of the following best describes the concept of 'rational expectations' in the context of macroeconomic theory?a) The hypothesis that consumers and firms expect future inflation to match past inflation rates without considering current economic policies.b) The idea that individuals and firms make forecasts of future economic variables based solely on historical data, ignoring all current available information.c) The theory that individuals and firms use all available information, including current and historical data, to make accurate predictions about future economic variables.d) The assumption that individuals and firms consistently underestimate the impact of monetary and fiscal policies on the economy due to a lack of available information.Please don't use ai please provide valuable answer otherwise be ready for disupvoteAssume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers decreases, but producers are not affected. Also in year 2, the cost of lumber used to build homes decreases. Which of the following is most likely to be the equilibrium change? a The equilibrium will be at point C before the change in expectations and point B after the change b The equilibrium will be at point A before the change in expectations and point B after the change c The equilibrium will be at point A before the change in expectations and point E after the change d The equilibrium will be at point E before the change in expectations and point A after the changeAccording to the rational expectations model, how would an announcement of expansionary monetary policy affect aggregate output? a) It would decrease aggregate output. b) It would increase aggregate output in both the short run and the long run. c) It would increase aggregate output in the short run. d) It would have no effect on aggregate output.
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