Suppose the economy is initially at a long-run equilibrium. The Fed then increases the money supply. In the following three diagrams, assume the resulting inflation is unexpected.

The long-run effects of monetary policy The following graphs plot the long-run equilibrium situation for an economy. The first graph plots the aggregate demand (AD) and long-run aggregate supply (LRAS) curves. The second graph plots the long-run and short-run Phillips curves (LRPC and SRPC, respectively). LRAS H AD 3 6 9 12 OUTPUT (Trillions of dollars) PRICE LEVEL 0 15 18 AD 441 LRAS

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Suppose the economy is experiencing inflation. If the Federal Reserve enacts contractionary monetary policy, interest rates will likely   Multiple Choice   rise causing prices to decrease.   fall causing prices to increase.   fall causing prices to decrease.   rise causing prices to increase

Suppose the current inflation rate is a constant 7% and the central bank implements a disinflation policy to reduce it to its target rate of 3%. To achieve this objective the central bank, by increasing its cash rate, raise the nominal interest rate from its current 9% to 14%. In the long run, at which the central bank achieves its inflation target, what will be the nominal rate of interest, the real rate of interest and the inflation rate?

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.   SR Phillips Curve0246810126543210INFLATION RATE (Percent)UNEMPLOYMENT RATE (Percent)SR Phillips Curve      In the short run, an unexpected decrease in the money supply results in    in the inflation rate and    in the unemployment rate.   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.   0246810126543210INFLATION RATE…

What Can the Fed Do about Inflation? In the article by Thomas Hogan, we learn that Russia's invasion of the Ukraine nor the shortage or supply chain issues has not derived the main causes of inflation. (Hogan, 2022) The main cause for the issues that we have been facing come directly from the constant price changes and the monetary policy that is currently in place.  We learn that with Federal Open Market Committee (FOMC) has not adjusted their monetary policy, and have been raising the rates in such small increments that is causing the inflation to continue in an upward trend. What needs to occur is the FOMC needs to raise interest rates in greater scales in order the combat the inflation that is taking place and stabilize the price levels that are out there. (Hogan, 2022) What needs occur is that the Fed needs to come up with a policy that will allow for a predetermined path that slows down and regulating the money growth back to a safe place.    Having the guidance from the article…

The economy was in equilibrium; the rate of inflation was on target. An increase in the level of technology in period 1 leads to an increase in potential output. a) Use a graph of the DAD-DAS curves to show the short and long-run consequences of the increase in potential output. Explain the shifts of the curves. b) Suppose that the increase in potential output is accompanied by a permanent reduction in the level of the central bank's inflation target. Use a graph of the DAD-DAS curves to show the short and long-run consequences of the increase in potential output and the change in inflation target. Explain the shifts of the curves.

Core inflation is more volatile than headline inflation. True False   Speculative demand for money falls when the opportunity cost of money rises. True False

The aggregate economy of India has a rate of money growth equal to 7. Initially the velocity of money is not changing. The long-run aggregate supply curve equals 2 But then there is a banking panic, causing the growth rate of the velocity of money to fall to -6 percent per year. In the absence of government intervention, the resulting recession would last for 3 years (meaning it would grow at the recession growth rate for 3 years, then return to long-run equilibrium after that). Assume that just before the recession started, India's level of GDP was equal to $100 billion. Your boss has proposed that the government should step in and use fiscal policy to end the recession immediately. But Raj Kumar, a member of the opposition, has claimed that fiscal policy is too expensive, and anyways there is no reason to end the recession because it will end on its own. To counter his argument, your boss has asked you to calculate how much lower GDP would be by the end of the recession if the…