Assess the following event on the assumption that policymakers are using the Taylor rule as a basis for policy changes, as specified in equation: r = 2 + 0.5(π – π^T) + 0.5(Y-Y^P). In 1973, the United States experienced an unexpected slowdown in productivity, which reduced potential output. Show how the real interest rate (r), output (Y), and inflation behave in the short-run and long-run. Explain and graph using MP, IS, and AD-AS graph to demonstrate.
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Economics
Assess the following event on the assumption that policymakers are using the Taylor rule as a basis for policy changes, as specified in equation: r = 2 + 0.5(π – π^T) + 0.5(Y-Y^P). In 1973, the United States experienced an unexpected slowdown in productivity, which reduced potential output. Show how the real interest rate (r), output (Y), and inflation behave in the short-run and long-run. Explain and graph using MP, IS, and AD-AS graph to demonstrate.
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- On June 5, 2003, the European Central Bank acted to decrease the short-term interest rate in Europe by half a percentage point, to 2 percent. The bank’s president at the time, Willem Duisenberg, suggested that, in the future, the bank could reduce rates further. The rate cut was made because European countries were growing very slowly or were in recession. What effect did the bank hope the action would have on the economy? Be specific. What was the hoped-for result on C, I, and Y?Read the following premise carefully and answer the questions specifically and in detail. You must answer the request with the correct information, showing that you understand and can properly apply macroeconomic concepts. Try to address all elements of each question and always express the answers in your own words. Faced with an instability of economic growth caused by a recession or accelerated inflation, the Fed uses the open market operation to increase or decrease the available reserves of commercial banks which, in turn, will affect the amount of money available in the economy . In addition to the open market operation, the Fed has other tools available to promote growth, sustainability, and economic stability in a country. These tools have been used historically; A suitable example was the 2008 mortgage debt crisis. 1. Explain in detail monetary policy, its role and its effects on short and long-term economic fluctuations. Use the aggregate demand and supply model presented in…An economy's aggregate demand curve (the relationship between short-run equilibrium output and inflation) is described by the equation:Y = 15,000 - 12,000π, where π is the inflation rate. Initially, the inflation rate is 2 percent or π = 0.02. Potential output Yp equals 14,640.Note: Keep as much precision as possible during your calculations. Your final answer for inflation should be accurate to at least two decimal places and output should be accurate to the nearest whole number.a) Find inflation and output in short-run equilibrium. Inflation : 0%Output : $0 b) Find inflation and output in long-run equilibrium. Inflation : 0%Output : $0
- In April 2020, as a result of the coronavirus -- along with the Governments’ “shuttering in” policies -- the United States experienced deflation, rising unemployment (from 4.4% to 14.7%) and falling GDP (annualized at a negative 4.8%). As a result, the Fed lowered the Federal Funds rate to zero percent (0%). The natural rate of unemployment in the United States is 4.5%. Assume that in May 2021, the inflation rate had increased to 2.6% (annualized) -- yet the inflation rate was expected to fall beneath 1.4% (annualized) beginning in July 2021 -- and the unemployment rate fell to 6% in the United States. As a result, the most likely policy for the Fed is to A. lower the targeted federal funds rate to a negative 1% (-1%) to be consistent with the ECB B. maintain the current targeted federal funds rate. C. increase the targeted federal funds rate consistent with the long run Phillips Curve D. increase the targeted federal funds rate…Consider a scenario of a closed economy in the short run where price level is fixed. Assume that both taxes and money supply increase in a way that keep output constant in equilibrium (suppose that the marginal propensity to consume is less than one). Which of the following may result from the policy change? a) It will lead to an increase in investment but a decrease in consumption. b) It will result in an increase in investment but a decrease in government spending. c) It will lead to an increase in investment and private saving. d) It will decrease investment but increase in public saving.Consider a scenario of a closed economy in the short run where price level is fixed. Assume that both taxes and money supply increase in a way that keep output constant in equilibrium (suppose that the marginal propensity to consume is less than one). Which of the following may result from the policy change? a) It will lead to an increase in investment but a decrease in consumption.b) It will result in an increase in investment but a decrease in government spending.c) It will lead to an increase in investment and private saving.d) It will decrease investment but increase in public saving.
- Suppose that, in an attempt to combat severe unemployment, the government decides to increase the amount of money in circulation in the economy. This monetary policy action demand for goods and services in the economy, leading to prices for products. In the short run, the change in prices induces firms to produce goods and services. This, in turn, leads to a unemployment level. Based on this analysis, the economy faces the following trade-off between inflation and unemployment: Higher inflation leads to unemployment. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.The mandate of the South African Reserve Bank (SARB) states that “the Reserve Bank is required to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa”. There are several macroeconomic determinants that in many ways affect the outlook of the economy, such as inflation, growth, interest rates, unemployment and exchange rates. There has been an ongoing conversation among economists and politicians about the mandate of the SARB. Do you think that the mandate of the SARB should change? Support your view.Suppose that you are employed as an advisor to the central bank. Select the proper policy recommendation or economic prediction for each of the following scenarios. Which policy is appropriate when a rising aggregate price level is a concern but GDP is growing at an acceptable rate? contractionary or restrictive monetary policy (tight money policy) It is unclear which type of monetary policy is appropriate. expansionary monetary policy (easy money policy) Which policy is appropriate when a rising aggregate price level is a concern and GDP is not growing at an acceptable rate? It is unclear which type of monetary policy is appropriate. contractionary or restrictive monetary policy (tight money policy) expansionary monetary policy (easy money policy) Contractionary or restrictive monetary policy (tight money policy) will cause interest rates to increase sometimes and decrease sometimes. decrease. increase.
- A severe negative supply shock occurs when there is a significant reduction in the supply of key inputs, such as labor, raw materials, or energy. This can lead to a reduction in output, higher prices, and potentially stagflation (i.e., high inflation and low economic growth). To tackle the effects of a severe negative supply shock, governments and central banks may use various macroeconomic policies. Supply-side policies: Supply-side policies refer to measures aimed at increasing the productive capacity of the economy. In the case of a severe negative supply shock, the government may implement supply-side policies such as tax incentives or subsidies to encourage firms to invest in new technology or production methods. However, these policies may take time to have an impact and may not be sufficient to offset the immediate effects of the supply shock. explain this graphically please.Complete the following table to compare the results of an unanticipated expansionary policy to those of an anticipated expansionary policy in the short run and long run. Determine whether, in the short run, the level of output increases, decreases, or remains unchanged relative to the potential output level when the expansionary policy is anticipated versus unanticipated. Additionally, determine whether, in the long run, the actual price level is above, below, or the same as initial expectations under both scenarios, and, again, determine whether the level of output increases, decreases, or remains unchanged. Anticipated Expansionary Policy Unanticipated Expansionary Policy Short-Run Change in Output Decrease/Increase* Decrease/Increase/No Change* Long-Run Change in Price Level Same as Initial expectation/Higher then initial expectations/ lower then initial expectations* (same options as box on the left) ** Long-Run Change in Output Decrease/Increase/No change*…The policies of the federal government influence the outcomes of the various activities in that economy. When government policies change or unplanned events occur, the resulting economic events or activity will usually change. Listed below is a policy or event that affect the performance of the economy: Interest rates are kept artificially low by the Federal Reserve for several years. For the question above, describe what would be the likely outcome in the economy. Use the appropriate tools of analysis, such as aggregate demand and aggregate supply where appropriate, to justify and explain your answer.