Assume the assumptions of the IS-LM model hold. Early last year, the onset of COVID-19 damaged the production ability of the economy and significantly decreased consumption. Which of the following. would be the most likely action of the central bank under thes scenano? Oa The central bank decreases the money supply, which decreases the interest rate offsetting the effects on output from the decreased production and consumption Ob The central bank increases the money supply, which increases the interest rate. offsetting the effects on output from the decreased production and consumption O. The central bank increases the money supply, which decreases the interest rate offsetting the effects on output from the decreased production and consumption Od The central bank decreases the money supply. which increases the interest rate offsetting the effects on output from the decreased production and consumption

Assume the assumptions of the IS-LM model hold. Early last year, the onset of COVID-19 damaged the production ability of the economy and significantly decreased consumption. Which of the following. would be the most likely action of the central bank under thes scenano? Oa The central bank decreases the money supply, which decreases the interest rate offsetting the effects on output from the decreased production and consumption Ob The central bank increases the money supply, which increases the interest rate. offsetting the effects on output from the decreased production and consumption O. The central bank increases the money supply, which decreases the interest rate offsetting the effects on output from the decreased production and consumption Od The central bank decreases the money supply. which increases the interest rate offsetting the effects on output from the decreased production and consumption

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider the IS-LM model. The government wants to do fiscal policy either by raising government spending or lowering taxes. What will be the difference between these two approaches? O One will shift IS: the other will shift LM. One will raise consumption and the other will raise economic investment. O One will shift IS rightward; the other will shift IS leftward. O One is direct and the other is indirect. Question 8 Put the following tools of monetary policy in order, from earliest to latest, of when the Fed used them as their primary instrument. A. Open market operations B. Discount loans C. Interest paid on excess reserves O C. B.A OCAB OBAC OAB.C
Which monetary policy tool can the Federal Reserve use to conduct an expansionary monetarypolicy (please state at least one instrument)? Which monetary policy instrument can the Fed useto conduct a restrictive monetary policy? Assume the country is experiencing highunemployment and a recession, such as during 2001, 2008-2009, and 2020. What is the Fedlikely to do in this scenario? Discuss the effects of such policy on the economy. Can you givea specific example to what the Fed did during any of those recessions? This is not a writing, it is economic.
1. Which of the following will shift the investment schedule to the left? O a. Decrease in autonomous investment spending O b. Decrease in autonomous spending O c. Increase in coefficient b O d. Decrease in coefficient k 2. 3. Which of the following will not affect the money market? O a. Money supply O b. Price of one good O c. Expansionary monetary policy O d. Contractionary monetary policy Government spending does not affect the investment schedule. O a. True O b. False; shifts investment schedule to the right O c. False; makes investment schedule steeper or flatter O d. False; shifts investment schedule to the left
"Crowding-out" occurs in the IS-LM model as rising government spending requires a in the interest rate in order to the demand for money at the new equilibrium, thus planned private investment. Select one: O a. fall, keep constant, raising O b. rise, lower, raising O c. rise, raise, lowering O d. rise, keep constant, lowering
a) Which of the follwing monetary policy actions can be used to close an inflationary gap?O No change in the money supply to keep interest rates constant.ODecrease the money supply to decrease interest rates,OIncrease the money supply to increase interest rates.O Increase the money supply to decrease interest rates.O Decrease the money supply to increase interest rates. b) Assume the economy is initially at full-employment equilibrium. Suppose the economy slows down and uncertainty increases, reducing consumption and investment expenditures, in the short run, this shock willcause the economy to fall below full enployment. To move the economy to a full-employment equilibrium, the Fed could:O. decrease government spendingO. increase corporate tax ratesO. lower the federal fund rate targetO. increase government spending O. raise interest rates
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2. Consider the following IS-LM model: C = 200+ 0.25Yd I = 150+ 0.25Y 1000i G = 250 T = 200 b. d = 2Y - 8000i MS 3200 and P = 2 a. Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I and G. M Now that the money supply increases to suppose 1,840. Solve for equilibrium Y, į c, and T, and describe in words the effects of an expansionary monetary policy on the equilibrium Y, i, c, and T. = c. Set M/P equal to its initial value of 1,600. Now suppose that government spending increases to G = 400. Solve for the new equilibrium Y, į, and C. Summarize the effects of an expansionary fiscal policy on Y, i, and C.
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1) Inflation in Theoretica 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 2) Your mother states that lowering interest rates in the recessionary COVID-19 period is good policy because it will guarantee consumers will spend more as it is cheaper to borrow money. Do you agree or disagree with her statement? Provide two reasonings to justify your answer. 3) Is either helicopter money or quantitative easing preferred in times of severe recessions in order to boost economic activity? Explain your reasoning.
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