on the following graph, shift the curve or drag the blue point along the curve, or do both, to show the long-run effects of the increase in the money supply INFLATION RATE (Percent
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- 29) An inflation rate targeting rule A) reduces uncertainty about monetary policy. means that the inflation rate must exceed 5 percent in order for the rule to be effective. nas been adopted the by the Fed in response to the financial crisis of 2008-2009. D) will not work if the Fed continues to sue open market operations. 30) "As the Fed Chases Inflation, Critics Shout, 'Faster!" "For weeks, the Fed has broadcast its intention to raise interest rates glacially." The Fed was moving slowly, according to an economist because "..the declining price of oil, economic fundamentals, including productivity and global competition, will keep inflation in check." The Fed, recognizing that the economy was improving stated it planned to "respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability." Other economists disagree with the Fed's restrained policy as a "mistake." www.nytimes, 7/1/2004 Economists estimate that if the Fed's policy was enacted in…4. Monetary policy and the Phillips curve The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment ra and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to increase the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. INFLATION RATE (Percent) 0 INFLATION RATE (Percent) 3 N D SR Philips Curve In the short run, an unexpected increase in the money supply results in unemployment rate. 12 UNEMPLOYMENT RATE (Parcent) On the following graph, shift the curve or drag the blue point along the supply. 3 15 12 UNEMPLOYMENT RATE (Percent) 15 15 In the long run, the increase in the money supply results in (relative to the economy's initial equilibrium).…4. Monetary policy and the Phillips curve The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to decrease the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. 6 SR Phillips Curve SR Phillips Curve 1 4. 6. 8 10 12 UNEMPLOYMENT RATE (Percent) 4. 2) INFLATION RATE (Percent)
- 4. Monetary policy and the Phillips curve The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to increase the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. INFLATION RATE (Percent) 6 5 N 1 0 0 SR Phillips Curve + 4 2 3 UNEMPLOYMENT RATE (Percent) 1 5 SR Phillips Curve In the short run, an unexpected increase in the money supply results in the unemployment rate. (?) in the inflation rate and in4. Monetary policy and the Phillips curve NOTE: MAKE SURE TO ADJUST BOTH GRAPHS PROPERLY!! and make sure its clear!! NOTE: options for first set of blanks 1. In the short run, an unexpected decrease in the money supply results in _____ (no change OR a decrease OR an increase) in the inflation rate and ______ (no change OR a decrease OR an increase NOTE: options for first set of blanks 2. In the short run, an unexpected decrease in the money supply results in _____ (no change OR a decrease OR an increase) in the unemployment rate (relative to the economy's initial equilibrium).4. Monetary policy and the Phillips curve The following graph plots the short-run Phillips curve for a hypothetical economy. The given point on the graph indicates the initial rates of unemployment and inflation. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to increase the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. INFLATION RATE (Percent) n 0 0 > SR Philips Curve 6 12 UNEMPLOYMENT RATE (Percent) 15 SR Phillips Curve
- Which is of the following is not a belief of monetarists? a.In the long-run, inflation is always a monetary phenomenon b.In the short-run, Fiscal policy is a better instrument of stabilization policy than monetary policy c.In the short-run, velocity is stable d.In the long-run, a ten percent increase in the money supply results in a ten percent increase in prices Early Keynesian thinks that money is less important because a.High interest elasticity of investment b.People have less incentive to buy bonds c.Fiscal Policy is more effective as it is determined by the politicians d.High interest elasticity of money demand If a country’s policy makers were to continuously use expansionary monetary policy in an attempt to hold unemployment below the natural rate the long-run result would be? a.All of these answers b.A decrease in the unemployment rate c.An increase in the level of output d.An increase in the rate of inflation The original Phillips curve…8. Monetary policy and the Phillips curve The following graph plots the short-run Phillips curve for a hypothetical economy. The given point on the graph indicates the initial rates of unemployment and inflation. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to increase the money supply, On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. INFLATION RATE (Percent) 5 2 SR Phillips Curve 9 6 12 UNEMPLOYMENT RATE (Percent) 15 18 SR Phillips Curve ?8. Monetary policy and the Phillips curve The following graph plots the short-run Phillips curve for a hypothetical economy. The given point on the graph indicates the initial rates of unemployment and inflation. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to decrease the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. INFLATION RATE (Percent) 5 2 INFLATION RATE (Percent) 1 0 6 5 0 1 0 3 In the short run, an unexpected decrease in the money supply results in unemployment rate. 0 9 6 12 UNEMPLOYMENT RATE (Percent) 3 SR Phillips Curve On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the long-run effects of the decrease in the money supply. O 6 UNEMPLOYMENT RATE (Percent) 9 15 12 18 15 In…