Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 12, Problem 5E
To determine
The policy of Fed to maintain lower inflation rate and stabilize the economy.
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a) Identify the four major tools of monetary policy. b) How can monetary policy address the problem of inflation?
It is 2019 and our economy has been growing too fast. The Fed is worried that inflation could become a serious problem in the near future. The Fed wants to cool the economy off before it crashes. Which one tool of monetary policy that the Fed could use to achieve this goal. how this tool could fix the economy by referencing what happens to interest rates, the money supplyprice levelsreal GDP and unemployment.
Suppose the Central bank were required to conduct monetary policy so as to hold the unemployment rate below 4%. What implications would this have for the economy?
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Macroeconomics (Fourth Edition)
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- Suppose the economy is initially at long run equilibrium, when there is an unexpected decrease in oil prices in the country.How does this impact the economy? (write out either "inflationary" or "recessionary" In response to this what monetary policy would the Fed employ? (write one of the following: "raise taxes", "lower taxes", "raise money supply", or "lower money supply"What is the most likely way the Fed will accomplish this change in the monetary policy? (write one of the following: "buy securities", "sell securities", "raise discount rate", "lower discount rate", or "legislation"This action by the Fed will cause interest rates to _______. (Write out "increase" or "decrease"The end result of the monetary policy is a shift of which curve in which direction. (Write out one of the following: "AD right", "AD left" "AS left", "AS right"arrow_forwardEconomics Suppose that a large bank borrowed $1 billion from the Federal Reserve for one week. How would this change the monetary base? If the Federal Reserve did not want the monetary base to change, what would it do? Explain your reasoning.arrow_forwardWhat are the goals of monetary policy? Which goal is the most important or the principal goal?arrow_forward
- The former chairman of the Federal Reserve, Alan Greenspan, used the term "irrational exuberance" in 1996 to describe the high levels of optimism among stock market investors at the time. Stock market indexes such as the S&P Composite Price Index were at an all-time high. Some commentators believed that the Fed should intervene to slow the expansion of the economy. Why would central banks want to clamp down when the economy is growing?arrow_forward“Monetary policy is the macroeconomic policy laid down by the central bank of an economy.”In terms of the above statement, explain how monetary policy can be used to combat inflationarrow_forwardHello, I would like help with this assignment. I sent the other day and the number one and two were solved, and I was told to send the rest. Thank you Monetary Policy If the economy is at full employment level of output where Y=Y*, demonstrate the state of the economy graphically and explain. If the monetary authority anticipates that growth will increase in the next 6-12 months, assume the Federal Reserve was correct, and Aggregate Demand increases. Demonstrate this on your graph, label this part b. What policy should they implement? What choices or options do they have to implement this policy? Demonstrate and explain the effects of this policy and explain fully. If the US government thought the economy was in a recessionary state, how would this policy response impact the monetary policy from part b and c. Explain fully.arrow_forward
- During times of rising inflation, the Fed will undertake monetary policy or "tight money policy."arrow_forwardWhat is the basic objective of monetary policy? What are the major strengths of monetary policy? Why is monetary policy easier to conduct than fiscal policy?arrow_forwardSuppose that the current inflation rate is at 9% and the unemployment rate is 3%. Given this data. what monetary policy action would should the Federal Reserve take? How would this affect the economy, the inflation rate, and the unemployment rate?arrow_forward
- Two types of monetary policy?arrow_forwardList the three tools that the Federal Reserve could use to enact Monetary Policy.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
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