Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 14, Problem 10E
To determine
To explain:
The potential harm caused to the economy in the given conditions.
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- Considering what you've learned about both fiscal and monetary policy, what are some of the benefits you might see from using monetary policy instead of fiscal policy to address common economic downturns? What could be some of the disadvantages?arrow_forwardWould you say central banks are more reactive than proactive?arrow_forwardTrue or False? In an assigned reading, Milton Friedman indicated that he agreed with John Maynard Keynes's explanation of the causes of the Great Depression. True False As discussed in class, which of the following was argued by monetarists of the 1970s? in a free market economy, central banks can never effectively manipulate money supply, because lending activity is subject to rapid changes an expansion of the money supply that is less than the growth of output during the same period will generally result in deflation O effects of changes in money supply are seen in output before they are seen in prices central banks should focus on minimizing the legal interest rates paid to depositors, as ensuring the safety of banks was the most important goalarrow_forward
- Describe a situation where a central bank would want to implement expansionary monetary policy. Describe a situation where a central bank would want to implement contractionary monetary policy. Suggest a policy tool that the central bank (e.g., the Federal Reserve) can use for one of the above situations and explain how that policy would alleviate the situation.arrow_forwardExplain the importance of timing when it comes to fiscal and monetary policy. Which has the advantage in the short term? Which in the long term?arrow_forwardThe United States Federal Reserve has two mandates when setting monetary policy - keep annual inflation low (around 2-3%) and the unemployment rate low (around 5%). Typically, efforts to adjust the money supply to cause inflation to decrease causes unemployment to increase and vice versa. Now, imagine a situation where the United States faces high inflation and high unemployment (called stagflation, was issue in late 1970s). What do you think the Federal Reserve should do in this situation?arrow_forward
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