The Fed's Policies under Volcker In the years 1979 to 1982, under the leadership of Paul Volcker, the Fed adopted a tight money policy to reduce the nation's inflation rate. Based on the aggregate supply - aggregate demand model, what would happen to the price level in the long run as a result of the Fed's tight money policy under Volcker's leadership? Choose one answer below: O The price level would end up higher in the long run. O The price level would end up lower in the long run. O The price level would end up at its initial level in the long run.

The Fed's Policies under Volcker In the years 1979 to 1982, under the leadership of Paul Volcker, the Fed adopted a tight money policy to reduce the nation's inflation rate. Based on the aggregate supply - aggregate demand model, what would happen to the price level in the long run as a result of the Fed's tight money policy under Volcker's leadership? Choose one answer below: O The price level would end up higher in the long run. O The price level would end up lower in the long run. O The price level would end up at its initial level in the long run.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The economic response to the overnight reduction in the French money supply by 20 percent in 1724: confirmed the quantity theory by leading to an immediate 20 percent reduction in the price level. O confirmed the neutrality of money because no real variables were affected by this nominal change. confirmed that money is not neutral in the short run because both output and prices dropped. contradicted Okun's law because decreases in output were not associated with increases in unemployment.
Price $14 $12 $10 $8 $6 $4 $2 100 Question 4 Supply (with tax) ***** 10 LE Supply 200 300 FEE Demand 400 500 600 Quantity of Burritos Part 4: Identify the amount of total surplus that is generated by this market. 0.5
The misperceptions theory concludes that: O A. in the short run, unanticipated monetary changes are neutral but anticipated monetary changes are not neutral, B. in the short run, both anticipated and unanticipated monetary changes are not neutral. Oc. unanticipated monetary changes are not neutral in either the short run or the long run. O D. in the short run, anticipated monetary changes are neutral but unanticipated monetary changes are not neutral.
Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. Price Level LRAS Aggregate Supply Aggregate Demand Quantity of Output Now adjust the graph to show the new long-run equilibrium. Aggregate Demand € Aggregate Supply What causes the economy to move from its short-run equilibrium to its long-run equilibrium? The government increases spending to increase aggregate demand. Nominal wages, prices, and perceptions adjust downward to this new price level. O The government increases taxes to curb aggregate demand. O Nominal wages, prices, and perceptions adjust upward to this new price level.
In regard to monetary policies, nonactivists have various proposals. True or False: Some nonactivists believe in a predetermined-money growth rate, which suggests that the monetary authorities should target the proper federal funds rate before implementing monetary policies. O True O False Which of the following statements best explains the difference between the Taylor rule and the two other nonactivist rules (the constant-money growth rate rule and the predetermined-money growth rate rule)? O The Taylor rule does not take into account the stability of prices. O The Taylor rule is not a derivation of the equation of exchange. O The Taylor rule suggests how much the money supply should grow. O The Taylor rule does not take into account the current state of the economy.
According to Friedman, in which of the following situations is the economy in long-run equilibrium? a. The expected economic growth rate is 3 percent and the actual inflation rate is 3 percent. b. The average inflation rate over the past five years is 2 percent and the expected inflation rate is 2 percent. c. The expected inflation rate is 3 percent and the actual inflation rate is 3 percent. d. The expected economic growth rate is 2 percent and the expected inflation rate is 2 percent.
ון רבSuip Reset the graph and click on the blue square to apply a negative supply shock the the economy. Then adjust the movable point to view the effects of potential policy responses to the negative supply shock. Use what you observe to answer the questions that follow. a. In response to the effects of a negative supply shock, policymakers decide to decrease aggregate demand. What are the effects of this choice? O an increase in aggregate output, and an increase in the aggregate price level an decrease in aggregate output, and an decrease in the aggregate price level an increase in aggregate output, and an decrease in the aggregate price level an decrease in aggregate output, and an increase in the aggregate price level b. What are the overall tradeoffs with regard to this choice? Policymakers have chosen to fight inflation by increasing AD, but this further reduces aggregate output and makes the recession worse. Policymakers have chosen to fight inflation by decreasing AD, but this…
Question 8 Refer to the figure. In the figure, assume the initial real growth rate of the economy is 3% when a positive aggregate demand shock shifts the AD curve from AD, to AD5. As a result of the Fed's policy response, the AD curve shifts to AD, in the short run. Which of the following is TRUE about the Fed's policy response? Inflation LRAS rate, SRAS *ADS AD4 ► AD; AD2 AD; 3% Real growth The Fed responded too little to the shock. The Fed was too fast in responding to the shock. O The Fed provided just the right amount of response to the shock. The Fed responded too much to the shock.
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Now, suppose the economy is back in long-run equilibrium, and then the price of imported oil rises. On the following graph, shift a curve or adjust the point to reflect the short-run effect of the increase in the price of oil. nflation Rate L SRPC LRPC O True O False Unemployment Rate SRPC O Short-Run Effect LRPC True or False: If the Fed undertakes expansionary monetary policy, it can return the economy to its original inflation rate but the unemployment rate will be higher. (?)