S 5 Despite gradual recovery from the Covid crisis, inflation in Japan remains below the Bank of Japan’s (BOJ) target of 2%. Use the IS/LM/FE model to predict the short-run and long-run effects of lowering interest rates (expansionary monetary policy) on Japan’s output, interest rate, and prices. Is this the appropriate policy to boost inflation? Show your graph.
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- Suppose pessimism about the future makes household consumption plummet. How would this affect the AD-AS model in the short-run, and what monetary policy could be implemented to stabilize this fluctuation? Illistrate on a diagram if possible.Assume that oil prices increase drastically, shifting SRAS to the left. To offset the effects of this shock on the economy assume that monetary policy decreases AD. By following this policy, what variable is monetary policy trying to control? net exports government expenditures real GDP pricesAssuming money demand is stable, explain why an economy that uses inflation target for monetary policy is effective in the promotion of economic growth during recession. Which variable helps inflation target to be more effective? Also, would expectations play a role in defining their effectiveness? Draw the AD-AS and IS-LM graph to support your answer. Provide your opinion regarding usage of Monetary Policy on Thai current economic situation
- Using the macro model we learned in this class (MP-IS and AD-AS framework) consider the current crisis. Consider the monetary policy responses to the covid pandemic crisis. Develop separate analysis for an economy which have positive policy rates vs an economy which is at the zero lower bound. Would it require different monetary policies? If so how? What would you expect to happen to the inflation rate, unemployment rate, and economic growth in the near future? Use graphs for each case.Suppose the central bank implements a monetary contraction in the current period and is expected to continue this monetary contraction in the future. Use the IS-LM model to illustrate graphically and explain the effects of this policy on current output and the current interest rate.Critically discuss the short-run and long-run effects on output and the price level using the AD-AS diagram: Explain the effectiveness of the monetary policy, if people do not believe that the central bank will honour its promise to bring the economy back to the pre-pandemic level. In this case, is the sacrifice ratio expected to be larger or smaller?
- A Central Bank is said to have a more hawkish stance when it reacts more aggressively against deviations of inflation from target. Recall that the AD curve is given by: Ýį = ā – bm(T; – ñ), and the AS curve is given by Tt = Tt-1 + ū¥Ýt +ō Knowing this, saying that the Central Bank became more hawkish is equivalent to say: Inflation, AS AD Output, Ỹ O That ā decreased, thus moving down the AD curve. O That b decreased, thus making the AD curve steeper. That ū increased, thus making the AS curve steeper. O That ñ decreased, thus flattening the AD curve. O That the equilibrium inflation moved to below ĩñ. That b decreased, thus making the AD curve flatter. O That ā increased, thus moving up the AD curve. O That ñ increased, thus flattening the AD curve.How does restrictive monetary policy affect the level of investment and consumption? Explain your answer by using the IS/LM modelQ1 [Inflation in a monetary OLG model] Consider an overlapping generations model in which individuals live for two periods, young and old. The economy begins in period 1, when there are NO numbers of the initial old. In each period t 2 1, Nt young individuals are born, where Nt = nNt-1 and n>1. There is only one good in this economy. The good cannot be stored from one period to the next. In each period, each young individual is endowed with y units of the consumption good and old individuals have zero endowment. The young generations' preference can be expressed use the following utility function: u(c1,t, c2,t+1) = log(c1,t) + B log(c2,t+1) Members of the initial old generation only live for one period and have utility u(co,1) = logc0,1. In this economy, individuals can use fiat money to facilitate trades between different generations. Assume the stock of fiat money M grows at a constant rate y, i.e., Mt = yMt-1, where y >1. The money created each period is used to finance a lump- sum…
- Use the AD-AS model to illustrate what the impact of an expansionary monetary policyinstrument will be on the general price level and the level of realproduction and income in the economy.Consider the AD-AS model in the following picture. If the original level of aggregate demand is Ef, what will be the effect of an expansionary monetary policy that shifts aggregate demand from ADf to ADI? Price Pf Pr Fig11a Er C. Yr Real GDP LRAS ADr Ef I don't know. SRAS Ei ADf Yf Yi a. stagflation b. inflation and unemployment ADi d. inflation, but little employmentInflation in Theoretica(pretend country) is currently below the target range of its central bank. What does this tell you regarding Theoretica’s likely output gap? Illustrate it using an AS-AD diagram, and briefly explain your diagram