Short-run monetary policy changes should Multiple Choice Oignore any fiscal policy change that a government has implemented allow for modest adjustments once feedback from previous changes is available never be implemented if uncertainty exists about the exact effects of monetary policy on key variables
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- Illustrate each of the following situations with a graphshowing AS and AD curves, and explain what happensto the equilibrium values of the price level and aggregateoutput:a. A decrease in G with the money supply held constant bythe Fedb. A decrease in the price of oil with no change ingovernment spendingc. An increase in Z with no change in governmentspendingd. An increase in the price of oil and a decrease in Goptions:a contractionary fiscala contractionary monetarya recessionaryan expansionary fiscalan expansionary monetary an inflationaryequal to greater thangrew inflationless thanrecededthe same asunemploymentExercise 1 a) Use the equation for the circular flow of the real economy to give an overview of thedemand side components and tie players in the macroeconomy to each of thesecomponents.b) How can you use the equation for the circular flow to discuss the effect of fiscal policyand monetary policy?c) As a follow up from part b), discuss the statement: “During the pandemic, expansionarymonetary policy did not boost the economy as expected”.d) For the following two cases, use the equation for the real interest rate to give anexample for each case using numbers for real interest rate, nominal interest rateand inflation. Explain each number you select.Case 1: A situation where it is a real cost if you borrow money.Case 2: A situation where it is a real gain if you borrow money.e) Let GDP (Gross Domestic Product) as a simplification, only be one good, apples. Find theGDP deflator if nominal GDP = 100 and real GDP = 20 and explain these three numbersusing apples as an example.f) As a follow up…
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- The economy begins in longcrun equilibrium. Thenone day, the president appoints a new chair of theFederal Reserve. 11\is new chainnan is well known forher view that inflation is not a major problcn1 for aneconomy.a. How would this news affect the price level thatpeople would expect to prevail?b. How would this change in the expected pricelevel affect the nonlinal wage that workers andfmn.s agree to in their new labor contracts?c. How would this change in the nonlinal wageaffect the profitability of producing goods andservia,s at any given price level?d. How docs this change in profitability affect theshort-run aggregate-supply curve?e. ff aggregate demand is held constant, how docsthis sllift in the aggregate-supply curve affect theprice level and the quantity of output produced?f. Do you think this Fed chainnan was a goodappointment?Pls help with below homwork. Explain and illustrate graphically the possible fiscal and monetary policy responses to a demand shock in the Keynesian model. What are the limitations of fiscal and monetary policy in the Keynesian model when a demand shock disturbs the economy?"H0w w0uld y0u define price stickiness ? H0w d0es this phen0men0n lead t0 an increase in the sh0rt run level 0f 0utput acc0rding t0 the Keynesians?" C0mment in simple w0rds
- "H0w w0uld y0u define price stickiness ? H0w d0es this phen0men0n lead t0 an increase in the sh0rt run level 0f 0utput acc0rding t0 the Keynesians?" C0mmentIn the basic New Keynesian model, suppose that there is an increase in government spending. • First, suppose that the central bank does nothing (accommodates the shock). Illustrate onthe graphs and explain what will be the effects on inflation and output? • Second, suppose that economy initially has inflation equal to the central bank’s inflationtarget and an output gap of zero. What action do you expect the central bank wouldundertake? Illustrate you answer on the graph and explain. PLEASE SHOW ALL HAND WRITTEN STEPS AND WORK!There is currently a political and academic controversy whether or not stimulus packagesagainst the Covid-induced economic recession will cause inflation. Professor OlivierBlanchard has warned that the stimulus package of the US-administration may lead toinflation in the US. However, he does not see inflation dangers emanating from stimulusprograms in the Eurozone. The Next Generation EU program is not only considered to be a stimulus program but also tobe a growth program, which by spending on infrastructure and climate-related investmentsis expected to lead to an increase in potential output.Analyze in an AD-AS model the impact of economic growth on actual GDP and the pricelevel. Also elaborate on the role that an additional demand stimulus could play.