Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Question
Chapter 14, Problem 1E
(a)
To determine
Analyze the effect of shock in the IS/MP diagram.
(b)
To determine
Policy response recommend to Federal Reserve and effect of this policy response.
(c)
To determine
Policy response recommend to Federal Reserve when the economy is in severe financial crisis.
(d)
To determine
Explain the other policy response.
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Students have asked these similar questions
(a) Assume a temporary negative aggregate
supply shock strikes an economy. Please
explain how a central bank with a strict
inflation target will respond to this event?
14) During a period when economic growth is very strong and inflation rates are rising to uncomfortable levels, Federal Reserve policymakers might decide to pursue which type of monetary policy?
15) Which of the following pairs of terms is used to describe fluctuations in the economy?
16)
During a contractionary phase of the business cycle which of the following most likely occurs?
17) Which of the following regulations prevent price gouging?
18) what does fiscal policy include?
If the U.S. economy enters a new financial crisis, the government may use monetary policy tools to avert a financial meltdown. The government may utilize monetary policy tools to avert a financial collapse if the U.S. economy experiences another financial crisis. First, the Federal Reserve should operate as a lender of last resort and make loans to banks and financial institutions to meet their short-term obligations. When the risk of a financial collapse has receded, the government should revert to its traditional expansionary monetary policy.
Open market activities of buying and selling assets on the open market is one action the government may use. Through open market operations, the government may increase the economy's liquidity by purchasing assets from banks and the general public.
Reducing the discount rate, i.e. the interest rate at which the central bank provides short-term loans to banks, will result in a decrease in the rate at which commercial banks offer loans to the…
Chapter 14 Solutions
Macroeconomics (Fourth Edition)
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