Discuss, with the aid of an aggregate output market diagram, what kind of monetary policy can be adopted to restore the economy to the full employment equilibrium.
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Q: Part (b) Discuss, with the aid of an aggregate output market diagram, what kind of monetary policy…
A: b) The aggregate output(Y) is a function of price(P). In the short run, the prices are rigid or…
Q: The focus of monetary policy nowadays is by using interest rate as an indicator. True False
A: Monetary policy is used by the central bank to regulate the money supply in the economy.
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A: Inflation can be combated by decreasing the aggregate demand.
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A: Answer- Need to find- If a recession persists due to nominal wage and price stickiness (i.e., slow…
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A: Answer: Correct option: (D) expansionary monetary policy Explanation: In the case of a recession,…
Q: Cite one limitation of monetary policy and make recommendation to address it.
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A: An expansionary monetary policy increases the money supply in an economy which leads to increase in…
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A: Expansionary monetary policy is implemented by the central bank to increase the money supply via…
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A: (Q) In country A, all wage contracts are indexed to inflation. That is, each month wages are…
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A:
Q: When monetary policy alters the monetary base the money supply and interest rates will decrease it…
A: Nominal GDP=velocity of money x money supply Here if the money supply increases then the velocity of…
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- Starting from the equilibrium described in (B), suppose investors experience a decrease in “animal spirits.” What happens to output? Can the central bank offset this with expansionary monetary policy?B. Consider the following model where the monetary policy will be the only policy variable affecting demand for output. For expositional purposes the income velocity of money is held constant. With these assumptions the aggregate demand for output can be written in logs as: mt + v = Pt+ Yt The above equation is the equation of exchange in logs (equation that addresses the relationship between money and price level, and between money and nominal GDP. The equation tells us that total spending (M x V) is equal to total sales revenue (P x Y)). To complete the model we need to add the aggregate supply equation and a money supply rule. yt = y'+ a(pt - Et-1pt1) (2) mt = Byt-1+Et (3) Given that agents form expectations rationally, find a solution for (i) yt and (ii) pt. Is there any scope in this model for the policy authorities to influence the output through systematic stabilisation policy? Explain your answer.Consider a closed economy where the goods and money markets are described by the following relationships: C = 500+ 0.8(Y-T) I= 500 - 10r M/P = 0.1Y - 35r G = 800 T = 200 M = 1000 P = 2 Where C is planned consumption, I is planned investment spending, T' is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate.
- A. Consider two economies, A and B. Both economies have the same population, supply of fiat money and endowments. In each economy, the number of young people born in each period is constant at N, and the supply of fiat money is constant at M. Furthermore, each person is endowed with y units of the consumption good when young and zero when old. The only difference between the two economies is regarding preferences. Other things being equal, people in economy A have preferences that lean toward first period consumption whereas individual preferences in economy B lean toward second period consumption. We will also assume stationarity. The lifetime budget constraints and typical indifference curves for people in the two economies are represented in the diagram below (Diagram 1). i) Will there be a difference in the rates of return of fiat money in the two economies? If so, which economy will have the higher rate of return of fiat money? Give an intuitive interpretation of your answer. ii)…Do the fiscal and monetary policies undertaken at the beginning of the pandemic outbreak to deal with the effects of COVID-19 on the economy lend support to modern monetary theory? Why or why not?With COVID-19, many economies suffered from severe recession. To save their economies, a mix of monetary and fiscal policies was used in 2020. Explain how monetary policy and fiscal policy could be used to stimulate an economy under a recession. State their limitations under the COVID-19.
- Consider a closed economy where the goods and money markets are described by the following relationships: C = 500+ 0.8(Y-T) I= 500-10r - M P = = 0.1Y - 35r G = 800 T = 200 M = 1000 P = 2 Where C is planned consumption, / is planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). Compute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output. d) If the Central Bank intends to pursue monetary policy in order to restore output to the same level before the fall in consumer confidence, how much should money supply change by? Use graphs to show the change in the economy and explain very carefully the monetary transmission mechanism e) Suppose that, instead of relying on monetary…Consider the monetary intertemporal model. Payments can be made with either credit cards or with money, and we denote the amount of transactions in real terms with credit cards as X. The bank is willing to supply credit card services as a function of Xs(q) where q is the cost per unit of credit. The money supply is given by Ms and the goods market and the labour market are as we described in the real intertemporal model Assume that the government introduces a tax on credit card services. That is, if a consumer or a firm holds a credit card balance of X, they are taxed tX where t is the tax rate. Determine the effects on the equilibriums price and the quantity of credit card services, the demand for money, and the price levelIf investment and consumption expenditures fall and cause GDP to fall, what is an appropriate monetary policy? Question 36 options: increase monetary base growth and decrease interest rates increase taxes and decrease government expenditures decrease monetary base growth and increase interest rates decrease taxes and increase government expenditures
- we make use of the general monetary model here, where L is no longer assumed constant, and money demand is inversely related to the nominal interest rate. Recall from that earlier question inflation rate in Korea is = 10% and inflation rate in Japan is = 0%. In addition, assume that the bank deposits in Japan pay 2% interest rate (i¥ = 2%). Compute the interest rate paid on South Korean won deposits (iwon). Using the definition of the real interest rate, show that the real interest rate in South Korea (rwon) is equal to the real interest rate in Japan (r¥) Suppose the Bank of Korea decreases the money growth rate from 15% to 10% and the inflation rate falls proportionately (one for one) with this decrease. If the nominal interest rate in Japan remains unchanged, what happens to the interest rate paid on Korean won deposits? Using time series diagrams (impulse graphs), illustrate how this decrease in the money growth rate affects South Korea’s…Are the following statements true or false? Justify your answer with macroeconomic theory. (a) An increase in public expenditure will always increase inflation more than output. (b) With a flexible inflation target, the central bank will emphasize both inflation and inflation exchange rate to an equal degree.Consider a closed economy where the goods and money markets are described by the following relationships: C = 500+ 0.8(Y-T) 500 - 10r I M P = = 0.1Y - 35r G = 800 T = 200 M = 1000 P = 2 Where C is planned consumption, / is planned investment spending, T is government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. d) If the Central Bank intends to pursue monetary policy in order to restore output to the same level before the fall in consumer confidence, how much should money supply change by? Use graphs to show the change in the economy and explain very carefully the monetary transmission mechanism e) Suppose that, the government intends to take an active role in restoring the economy to the original equilibrium by pursuing an expansionary fiscal policy. How much should government spending change by? With the help of graphs, explain very carefully, the impact of this policy on the economy.