MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
10th Edition
ISBN: 9781319467203
Author: Mankiw
Publisher: MAC HIGHER
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Question
Chapter 14, Problem 6PA
(a)
To determine
The impact over economy with anticipated and unanticipated changes in money supply.
(b)
To determine
The impact of policy irrelevance proposition.
(c)
To determine
The impact of
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Which of the following is accurate?
Select one:
a. Monetary policy is neutral in both the short run and the long run.
b. Monetary policy has profound effects on real variables in the long run, but is neutral in the short run.
c. Monetary policy has profound effects on real variables in both the short run and the long run.
d. Though monetary policy is neutral in the long run, it may have effects
real variables in the short run.
Hello, I need help with a macroeconomics question. Thank you in advance!
The answers are based on a short exerpt from the Federal Reserves press release from Feb 1, 2023 (attatchde below).
7. What do you expect to happen to the money supply?
8. What do you expect to happen to the inflation rate?
9. How would you expect all these decisions to affect employment in the economy?
10. How do the effects you found on 8 and 9 align with what the Fed was hoping to attain?
Suppose that changes in bank regulations expand the availability of credit cards so that people need to hold less cash.
a. How does this event affect the demand for money?
b. If the Fed does not respond to this event, what will happen to the price level?
c. If the Fed wants to keep the price level stable, what should it do?
(Please show me the graphs. Explanations do not need to be specific.)
Chapter 14 Solutions
MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
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- Suppose that expanded credit card availability makes people demand less money at every value of money. a) Using the graph of the money market, show and explain how this change will impact the equilibrium value of money and the equilibrium price level in the economy (do not forget to label the axes). Using the graph of the money market, show and explain the action the Federal Reserve could take to return the economy to its initial price level.arrow_forwardWhich of the following is true of monetary policy? a. If the Fed wants to increase the money supply, it should increase the interest rate it pays banks on their reserves. b. The long and variable lags between a shift in monetary policy and when the policy shift affects output and employment makes it easier for the Fed to time monetary policy properly. c. A monetary policy that maintains price stability provides the foundation for both economic stability and the smooth operation of a market economy. d. The Fed should try to push real interest rates to the lowest possible level in order to stimulate investment and aggregate demand.arrow_forwardFor each of the following, please explain each step and show it in the graph! c) Assume an economy is at full employment, but then supply falls in the short run. What will happen in the long run if the policymakers do nothing and what will happen in the long run if the policy makers influence aggregate demand with monetary policy to drive back to the natural output?arrow_forward
- a) Creating additional money will increase money supply. What will happen to price level? Which theory did you use to answer the question? Explain the theory. b) According to Monetarism, when does an increase in money supply change both Real GDP and price level? In the short run or in the long run? Explain your answer using a diagram. c) According to Monetarism, when does an increase in money supply change only price level and not Real GDP? In the short run or in the long run? Explain your answer using a diagram.arrow_forwarda) Explain what happens to Money Demand when each of the following occurs: i, incomes rise; ii. the interest rate rises. b. Use the money market to explain why the aggregate demand curve slopes downward.arrow_forwardSuppose there is a negative TFP shock caused by a coronavirus. a. In response to the pandemic, the Fed bought a large amount of U.S. Treasury bonds from the public. How does that affect the money supply, if at all? Explain. b. In the neoclassical model, would an increase in the money supply affect real output or employment? Explain.arrow_forward
- Assume that an economy is experiencing an economic contraction and the government decides to reduce taxes and increase government spending to stimulate the economy. By the way, Central Bank keeps money supply constant. i) Evaluate the effect of this policy on the a) Interest Rate , b)Money Demand (in the SHORT-RUN.) Explain and show your answer on the graph. ii)Evaluate the effect of this policy on output and price Level (in the LONG-RUN.) Explain and show your answer on the graph. Note : In figures, please label the axis and show the changes on the graphs using arrows.arrow_forwardWhich of the following is true for monetary policy? Select one: a. As a contractionary monetary policy, the Bank of Canada can increase the target for the overnight rate. b. As an expansionary monetary policy, the central bank can buy bonds from the public to reduce a inflationary gap. c. The central bank can sell bonds during an economic downturn in order to stabilize the economy. d. The central bank can use open market operations to change the target for the overnight rate.arrow_forwardWhich of the following statements is true of the money supply? a) Increasing the money supply is a way of warding off an economic downturn. b) Decreasing the money supply is a way of warding off an economic downturn. c) The money supply is increased by lowering spending. d) The money supply is increased by raising taxes.arrow_forward
- Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must a. decrease the money supply, which will move output back towards its long-run level. b. decrease the money supply, which will move output farther from its long-run level. c. increase the money supply, which will move output back towards its long-run level. d. increase the money supply, which will move output farther from its long-run level.arrow_forwardA. Discuss, with the help of diagrams, Friedman’s argument concerning the short and long-run effects of an increase in the money supply. B. Now discuss how his argument can be extended to study short and long-run effects of changes in the growth rate of a growing money supply. Both parts please.arrow_forwardIf the Bank of Canada conducts open-market sales, how do the money supply and the aggregate demand change? a. The money supply increases, and aggregate demand shifts left. b. The money supply decreases, and aggregate demand shifts right. c. The money supply decreases, and aggregate demand shifts left. d. The money supply increases, and aggregate demand shifts right.arrow_forward
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