If a recessionary gap occurs in the short run, then in the long run a new equilibrium arises when input prices and expectations adjust downward, causing the short-run aggregate supply curve to shift downward and to the right and pushing equilibrium real GDP per year back to its long-run value. The Federal Reserve can eliminate a recessionary gap in the short run by undertaking a policy action that increases aggregate demand. Which of the following is one monetary policy action that could eliminate the recessionary gap in the short run? A. The Fed can increase the money supply through an open market purchase of Treasury securities. B. The Fed can lower taxes. C. The Fed can increase the money supply through an open market sale of Treasury securities. D. The Fed can decrease the money supply through an open market purchase of Treasury securities.

(Problem 3, Page 439) Suppose that the Fed has a policy of increasing the money supply when it observes that the economy is in recession. However, suppose that about six months are needed for an increase in the money supply to affect aggregate demand, which is about the same amount of time needed for firms to review and reset their prices. What effects will the Fed's policy have on output and price stability? Does your answer change if (a) the Fed has some ability to forecast recessions or (b) price adjustment takes longer than six months?

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…

Suppose a wave of negative “ animal spirits” overruns the economy, and people become pessimistic about the future.What happens to aggregate demand? If the Fed wants to stabilize aggregate demand, how should it alter the money supply? If it does this, what happens to the interest rate? Why might the Fed choose not to respond in this way?

You will answer the following questions listed below. You will submit a Word document that will answer the following questions. Please submit your work using proper APA formatting. What actions should the Fed take if it believes the economy is about to experience a high rate of inflation? Now, let’s assume you are the President of the Fed and you have to make certain decisions in our economy. If the Fed orders a contractionary monetary policy, describe what will happen to the following variables relative to what would have happened without the policy: The money supply Interest rates Investment Consumption Net Exports The aggregate demand curve Real GDP The price level It should be minimum 3 word count with work cited page please.

You are the chair of the president’s Council of Economic Advisers. There has been an extremely hot and dry summer due to climate change. As a result, crop production has fallen drastically. The president calls you to the White House to discuss the impact on the economy. Would you explain to the president that a sharp drop in U.S. crop production would cause inflation, unemployment, or both?

After a series of measures to remedy the mortgage crisis that has beset the US economy, Ben Bernanke, chairman of the Board of Governors of the Federal Reserve and his colleagues are once again looking at cutting the central bank’s key interest rate as they hope that lowering the interest rates will give the economy a boost by encouraging investors and consumers to borrow and spend (Associated Press, n. pag.). The Fed is looking at slashing the interest rate by a full percent however, many economist believe that this is not the appropriate remedy for economic conundrum (Gavin, n. pag). According to many analysts, the issue of the economy regarding the mortgage is the lack of confidence by both the lender and the borrower. Even as the Fed resorts to drastic interest cuts, the first time the central bank has cut a full percentage point in one shot since 1982, this provides little help if lenders are not loaning money out of fear they will not be repaid and the borrowers…

Recently, some members of Congress have proposed a law that would make price stability the sole goal of monetary policy. Suppose such a law were passed. How would the Fed respond to an event that contracted aggregate demand? How would the Fed respond to an event that caused an adverse shift in short-run aggregate supply? In each case, is there another monetary policy that would lead to greater stability in output?

Which of the following is NOT an example of monetary policy to restrict aggregate demand? a)Raising interest rates b)Reducing money supply c)Rationing credit d)Increasing income tax