Macroeconomics
13th Edition
ISBN: 9780134744452
Author: PARKIN, Michael
Publisher: Pearson,
expand_more
expand_more
format_list_bulleted
Question
Chapter 14, Problem 17APA
To determine
Determine the conflict among the Fed’s mandated policy goals.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
What short-run tradeoff does the Fed face when it tries to achieve its dual mandate? The Fed faces a tradeoff between
A. the money growth rate and real GDP growth rate
B. the inflation rate and unemployment rate
C. keeping prices stable and moderating interest rates
D. changing tax revenues and balancing the government’s budget
The FED is facing a problem of unemployment. What policy should be used? How would each of the tools at the FED's disposal be used?
INTEREST RATE (Percent)
4. The effect of monetary policy on aggregate demand
Suppose the Federal Reserve ("the Fed") shifts to a contractionary monetary policy by selling bonds through open-market operations. Assume that this
policy is unanticipated. This problem will work through the short-run effects of this move.
The following graph shows the money demand and money supply curves. Show the effect of the Fed's contractionary monetary policy by shifting one
or both of the curves, and ignore any potential feedback effects. As a result of the Fed's policy, the interest rate to
INTEREST RATE (Percent)
0
°
300
600
Money Supply
Money Demand
-0-
Money Supply
900
1200
Money Demand
1500
1800
QUANTITY OF MONEY (Billions of dollars)
The following graph shows the demand for investment. Show the short-run effect of the Fed's contractionary monetary policy by shifting the curve or
moving the point along the curve. Again, ignore any potential feedback effects. Be sure the new interest rate…
Chapter 14 Solutions
Macroeconomics
Ch. 14.1 - Prob. 1RQCh. 14.1 - Prob. 2RQCh. 14.1 - Prob. 3RQCh. 14.1 - Prob. 4RQCh. 14.2 - Prob. 1RQCh. 14.2 - Prob. 2RQCh. 14.2 - Prob. 3RQCh. 14.3 - Prob. 1RQCh. 14.3 - Prob. 2RQCh. 14.3 - Prob. 3RQ
Ch. 14.3 - Prob. 4RQCh. 14.4 - Prob. 1RQCh. 14.4 - Prob. 2RQCh. 14.4 - Prob. 3RQCh. 14.4 - Prob. 4RQCh. 14.4 - Prob. 5RQCh. 14 - Prob. 1SPACh. 14 - Prob. 2SPACh. 14 - Prob. 3SPACh. 14 - Prob. 4SPACh. 14 - Prob. 5SPACh. 14 - Prob. 6SPACh. 14 - Prob. 7SPACh. 14 - Prob. 8SPACh. 14 - Prob. 9SPACh. 14 - Prob. 10SPACh. 14 - Prob. 11SPACh. 14 - Prob. 12SPACh. 14 - Prob. 13SPACh. 14 - Prob. 14SPACh. 14 - Prob. 15SPACh. 14 - Prob. 16APACh. 14 - Prob. 17APACh. 14 - Prob. 18APACh. 14 - Prob. 19APACh. 14 - Prob. 20APACh. 14 - Prob. 21APACh. 14 - Prob. 22APACh. 14 - Prob. 23APACh. 14 - Prob. 24APACh. 14 - Prob. 25APACh. 14 - Prob. 26APACh. 14 - Prob. 27APACh. 14 - Prob. 28APACh. 14 - Prob. 29APACh. 14 - Prob. 30APACh. 14 - Prob. 31APACh. 14 - Prob. 32APACh. 14 - Prob. 33APACh. 14 - Prob. 34APACh. 14 - Prob. 35APACh. 14 - Prob. 36APACh. 14 - Prob. 37APACh. 14 - Prob. 38APACh. 14 - Prob. 39APACh. 14 - Prob. 40APACh. 14 - Prob. 41APA
Knowledge Booster
Similar questions
- If the Fed opts to employ open market operations to increase the money supply, then a.The Fed will have to compensate for this change by increasing the discount rate b.Bond rates will increase because the Fed must buy Treasury bonds from individuals in the market, and this will cause the demand for these bonds to increase c.Banks will petition the Fed to increase the federal funds rate to recoup their losses d.Government budget surpluses will be more likely to achieve e.Bank reserves will decrease as consumers withdraw funds to purchase more Treasury Bonds and this will have an effect on the money supply via the money multiplierarrow_forwardThe Fed's monetary policy strategy that focuses on achieving price stability is known as: A. Money supply management B. Inflation targeting C. Tax policy D. Currency exchangearrow_forwardWhich one of these policies should the Fed engage in if unemployment is very high and inflation is under control? Select one: a. Buy government bonds through an Open Market Operation b. Print more money and give it directly to tax payers c. Lower corporate and income taxes d. Raise the discount rate e. Lower consumer confidencearrow_forward
- Question 24 One of the roles of the Fed is to _ Collect taxes Propose the budget Balance the federal budget Clear checksarrow_forwardThe Fed believes if inflation is high and GDP is high, unemployment is likely to: a. Increase b. Decrease c. Remain the same d. Invertarrow_forwardThe graph shows the demand curve for bank reserves, RD. On the graph, draw a point to show the discount rate. Label it 1. Draw a point to show the interest on reserves rate. Label it 2. Think about the Fed's monetary policy prior to the Great Recession. Draw the Fed's supply of reserves curve if the Fed set the federal funds rate target at 2 percent a year and hit it. >>> Draw only the objects specified in the question. Federal funds rate (percent per year) 4.0 3.5- 3.0- 2.5- 2.0- 1.5- 1.0- 0.5- 0.0+ 0.0 0.5 1.0 1.5 2.0 Reserves on deposit at Fed ($billions) B Select Line Point 2.5 RD 3.0arrow_forward
- 1) when the fed realises that inflation is going up at an unstable rate for the economy , which of the following are they most likely do ? (a) print more money (b) increase the discount rate (c) lover the reserve ratioarrow_forwardd. How does this change in profitability affect the short-run aggregate-supply curve? e. If aggregate demand is held constant, how does this shift in the aggregate-supply curve affect the price level and the quantity of out-put produced? f. Do you think this Fed chairman was a good appointment?arrow_forwardAn economy begins in long-run equilibrium. a. Consider the formulation of an oil cartel. Illustrate and explain how this affects prices and output over time. b. If the goal of the Fed is to stabilize the output, what should the Fed do with the money supply in response to this change? Illustrate and explain.arrow_forward
- What is the tradeoff that the Fed faces in the short run? In the short run, the Fed faces a tradeoff between ________. A. the nominal interest rate and the real interest rate B. monetary aggregates and credit aggregates C. short-term interest rates and long-term interest rates D. inflation and unemploymentarrow_forwardThe Fed's mandated goals are "maximum employment, stable prices, and moderate long-term interest rates." Explain the harmony among these goals in the long run. In the long run, ________. A. increases in monetary aggregates create a positive output gap and price stability, maximum employment, and close-to-zero nominal interest rates B. low nominal interest rates bring maximum employment, stable prices, and eliminate structural unemployment C. price stability brings maximum sustainable potential GDP growth, maximum employment, and a nominal interest rate close to the real interest rate D. price stability brings maximum sustainable potential GDP growth, unemployment below the natural rate, and nominal interest rates that rise slowlyarrow_forwardWhen economists speak of the "zero lower bound problem" that the Fed sometimes faces, what are they referring to? 1. It is when short term interest rates are close to zero meaning the Fed can no longer use changes in interest rates to stimulate the economy 2. It is when economic growth in the economy has reached zero percent and the Fed must use aggressive monetary policy 3. It is when the Fed has sold all the securities on its balance sheet and can no longer impact the money supply using open market operations 4. It is when banks choose to hold no excess reserves, making it impossible for the Fed to lower the discount ratearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax
Economics Today and Tomorrow, Student EditionEconomicsISBN:9780078747663Author:McGraw-HillPublisher:Glencoe/McGraw-Hill School Pub Co
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax
Economics Today and Tomorrow, Student Edition
Economics
ISBN:9780078747663
Author:McGraw-Hill
Publisher:Glencoe/McGraw-Hill School Pub Co