Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 13E
To determine
Approximate class for a sample size of 47.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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…
It is time to take control of the Federal Reserve, which controls the U.S. money supply (M). In this chapter, we are thinking only about the “long run,” so real GDP (Y ) is out of the Fed’s control, as is velocity (v). The Fed’s only goal is to make sure that the price level (P) is equal to 100 each and every year. That is just known as “price stability,” one of the main goals of most governments. Fill in the missing values of M for the table.
Year
M
v
=
P
Y
1
25,000
2
100
500
2
4
100
500
3
4
100
400
4
4
100
200
5
2
100
400
6
1
100
600
Year 2, M =
Year 3, M =
Year 4, M =
Year 5, M =
Year 6, M =
An economy is currently experiencing inflation that exceeds the target rate set by the central bank. Explain the process in full detail by which the central bank can bring the inflation rate down.
Chapter 12 Solutions
Macroeconomics (Fourth Edition)
Knowledge Booster
Similar questions
- The Federal Reserve uses an inflation target of 2-3%; most economists agree that the US natural rate of unemployment is around 4.5%. Imagine that you are a policy analyst observing the government and the Federal Reserve. You determine that inflation is 1% (very low) and unemployment is hovering around 6.5% (quite high.) The Federal Reserve responds by cutting interest rates and beginning to buy government bonds in open-market operations. The government takes the position that the only way out of a recession is to decrease government spending and passes a budget with very little spending (this is called "taking austerity measures"). What effects would the Fed's actions have, if taken alone? What effects would the government's actions have, if taken alone? What do you predict will occur when both actions are taken? Who do you think is making the right suggestion?arrow_forwardEconomists sometimes argue that moderate inflation may help the economy by making wages in labor markets more ["", "", ""] . The discussion in the text pointed out that wages tend to be sticky in their downward movements and that unemployment can result. A little inflation could nibble away at ["", ""] wages, and thus help real wages to ["", ""] if necessary. In this way, even if a moderate or high rate of inflation may act as sand in the gears of the economy, perhaps a low rate of inflation serves as oil for the gears of the labor market. This argument is controversial. A full analysis would have to account for all the effects of inflation. It does, however, offer another reason to believe that, all things considered, very low rates of inflation may not be especially harmful.arrow_forwardThe Bank of England will prevent members of its interest rate-setting committee from publishing individual opinions on the economy despite a review of its procedures calling for greater transparency. The Bank said a "collective forecast" will remain the centerpiece of the monetary policy committee's monthly reports, effectively barring members from explaining their own views on the likely path of economic growth, inflation, and unemployment. Critics of the Bank's policy said the Bank's governor, Sir Mervyn King, had rejected proposals for the public to see a wider range of views because he wanted to maintain a stranglehold on the direction of policy...In response, the Bank said it agreed some procedures were opaque and there was a need for clear lines of responsibility, but said that criticism of the monetary policy committee, which King chairs, were largely unfounded. Explain why then-Bank of England Governor Mervyn King would want to prevent members of the monetary policy committee…arrow_forward
- Most central banks, like the Bank of England, set targets for their economy's inflation rate. The Bank of England has an inflation target of 3.5% per year. According to the Quantity Theory of Money, by how much must the Bank of England grow the money stock in order to hit its inflation target? The Bank of England must decrease the money stock by 3.5% per year. The Bank of England must increase the money stock by 3.5% per year. The Bank of England must decrease the money stock by 3.5% per month. The Bank of England must increase the money stock by 3.5% per month.arrow_forwardIn 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…arrow_forwardThe Bank of Sweden inflation target is 2 % - which is a very common central bank goal. Why is it not zero percent?arrow_forward
- On March 20, 2024, the statement that best describes the Federal Reserve's stance on inflation and interest rates for 2024 is: Inflation is on a road to %. Choose the words that best fill in the blanks. Multiple Choice moving down slowly, sometimes bumpy, 2% moving down slowly, sometimes bumpy, 3% moving down slowly, smooth, 3% moving down quickly, sometimes bumpy, 2% moving down quickly, sometimes bumpy, 3% Prev 15 of 18 Next>arrow_forwardWhy is there no upward or downward pressure on the inflation rate when the economy is at full employment?arrow_forwardSuppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that, due to increased instability in the financial markets, a decrease in investor and consumer confidence occurs. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose the Federal Reserve wants the economy to return to full-employment as quickly as possible. Should the Fed intervene? If so, show the impact of successful monetary policy on your graph. Label this new equilibrium point "3."arrow_forward
- “As long as we do not mind having high inflation, we can achieve as low a level of unemployment as we want. All we have to do is increase the demand for goods and services by using, for example, expansionary monetary policy.” True or false? Explain and illustrate your answer.arrow_forwardAs a response to high inflation, in March 2022, the Federal Reserve System (Fed) approved its first interest rate hike since December 2018. However, inflation rate still remained very high and piked in June 2022. The last time inflation ran that high was in the 1980s. To bring down inflation, the Fed implemented more restrictive monetary policy and approved another interest rate hike of 0.75 percent in November 2022. The Fed decided to maintain the federal funds rate at a target level of 4%. What the Fed need do to achieve a higher target federal funds rate (how to implement monetary policy)? If CPI increased from 287.7 in the 2nd quarter (Q2) 2022 to 298.1 in the 3rd (Q3) 2022. Using CPI-based inflation rate, how much is real interest rate if the Fed sets nominal interest rate at 4%. Note: we assume velocity of money supply is constant.arrow_forwardYou 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.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning