Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 14, Problem 19QP
To determine
Relation of price with money supply, velocity, and real GDP in the equation of exchange.
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Using the AD-AS model, draw a graph and explain the effect of the implementation of a restrictive monetary policy on the equilibrium price level and the equilibrium level of output.
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The latest residential property price data from the Australian Bureau of Statistics show that housing prices across the nation rose by more than 20 percent last year. Housing is the most important source of household wealth. Using the AD-AS model, predict how this development affects output and the price level in the short run and the long run, assuming that policymakers take no action. How would your answers differ if the central bank responded with a contractionary monetary policy?Please draw the short run and long run AD-AS graph.
Chapter 14 Solutions
Macroeconomics
Ch. 14.1 - Prob. 1STCh. 14.1 - Prob. 2STCh. 14.1 - Prob. 3STCh. 14.2 - Prob. 1STCh. 14.2 - Prob. 2STCh. 14.3 - Prob. 1STCh. 14.3 - Prob. 2STCh. 14.3 - Prob. 3STCh. 14.4 - Prob. 1STCh. 14.4 - Prob. 2ST
Ch. 14.4 - Prob. 3STCh. 14 - Prob. 1QPCh. 14 - Prob. 2QPCh. 14 - Prob. 3QPCh. 14 - Prob. 4QPCh. 14 - Prob. 5QPCh. 14 - Prob. 6QPCh. 14 - Prob. 7QPCh. 14 - Prob. 8QPCh. 14 - Prob. 9QPCh. 14 - Prob. 10QPCh. 14 - Prob. 11QPCh. 14 - Prob. 12QPCh. 14 - Prob. 13QPCh. 14 - Prob. 14QPCh. 14 - Prob. 15QPCh. 14 - Prob. 16QPCh. 14 - Prob. 17QPCh. 14 - Prob. 18QPCh. 14 - Prob. 19QPCh. 14 - Prob. 1WNGCh. 14 - Prob. 2WNGCh. 14 - Prob. 3WNGCh. 14 - Prob. 4WNGCh. 14 - Prob. 5WNGCh. 14 - Prob. 6WNGCh. 14 - Prob. 7WNGCh. 14 - Prob. 8WNG
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- How does high inflation lead to a recession in the country? Explain the role of the government and the central bank to address the economic recession problem by using appropriate fiscal and monetary policies. Are there any potential problems with such policies?arrow_forwardState the main features of the monetary model. Use the model to analyse the impact of an expansionary monetary policy.arrow_forwardPlease explain the right and the wrong answers Q1)Which of the following is NOT a macroeconomic indicators (as mentioned in the presentations) that consumers use to help make the best consumer decisions? a)The Interest Rate Spread B)The imputed exchange rate C)Recent rates of inflation D)Business cycle information E)All of the options are macroeconomic indicators Q2)Based on the following information which of the following statements is true? Inflation Rate 1999-2000 3% 2000-2001 3.3% 2001-2002 4.2% a)The U.S. experienced a depression from 1999-2002 b)The U.S. experienced escalating inflation from 1999-2002 c)The U.S. experienced disinflation from 1999-2002 d)The U.S. experienced deflation from 1999-2002 e)The U.S. entered into a recession from 1999-2002arrow_forward
- An economy is currently experiencing inflation that exceeds the target rate set by the central bank. Identify and explain the benefits to an economy that stem from having price level stability.arrow_forwardAssume you are a member of the Federal Reserve, and you are adhering to the dual mandate. The economy reflects the following: 2018 CPI: 115 2019 CPI: 121.9 Potential GDP: $20 trillion 2019 Real GDP: $21 trillion Natural rate of unemployment: 4.00% 2019 unemployment rate: 3.50% Sketch a graph of the AD-AS Model. Be Sure to label all parts of the graph. Notate what type of gap you have and be sure to reflect it in your graph. What monetary policy tools can be used to fix the gap identified in part A? Assume you have adopted the Taylor Rule. Calculate the targeted federal funds rate if the equilibrium real federal funds rate and target rate of inflation is both 2%. Graphical demonstrate the effects your recommended change of the Federal Funds Rate has on the reserves market, the money market, and the loanable funds market. Note that you should have three separate graphs, one for each market, but you do not have to worry about finding the quantity of reserves, money, or…arrow_forwardHow can central banks improve their management of infation expectations?arrow_forward
- Imagine that in 2050, the dollar depreciates greatly against the euro. Use the ADAS model to explain the likely short run impacts on U.S. GDP and the aggregate price level. What do you anticipate to happen to U.S. consumption expenditures and U.S. employment? Explain your reasoning for each of your predictions and show graphically as appropriate.arrow_forwardWhich monetary policy would most likely increase aggregate demand? Multiple Choice Increasing margin requirements on stock purchases Increasing the discount rate Purchasing government securities in the open market Increasing reserve requirements at commercial banks and thrift institutionsarrow_forwardWhich of the following terms refers to a concept that helps to explain why deflation can create a dangerous downward spiral of spending and price declines. a) exchange rate effect b) population effect c) dilution effect d) postponement effectarrow_forward
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