Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506756
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 14, Problem 9CQ
To determine
Identify the role of price stability in the
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How can monetary policy address the problem of inflation?
What happens when an economy was initially in full employment, following a strongly expansionary monetary or budgetary policy?
a) Identify the four major tools of monetary policy. b) How can monetary policy address the problem of inflation?
Chapter 14 Solutions
Macroeconomics: Private and Public Choice (MindTap Course List)
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- The use of monetary policy is highly debated among classical and Keynesian economists. Where do they agree and where do they disagree with respect to monetary policy?arrow_forwardWhy might a price "freeze" help monetary policy to succeed.arrow_forwardWhen a central bank has driven down short-term nominal interest rates to nearly zero, the monetary policy can do nothing more to stimulate the economy. True or false? Explain.arrow_forward
- The 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_forwardWhat’s the difference between Nominal and Real variables in monetary policy?arrow_forwardWhich of these is an alternative to monetary policy and aims to reduce inflation? reduce the money supply raise government purchases reduce taxes increase taxesarrow_forward
- Name a couple of “players” in the monetary supply process.arrow_forwardThe monetary policy has two basic goals: to promote “maximum” sustainable output and employment and to promote “stable” prices (Federal Reserve Bank of San Franciso). Making these two goals possible is based off of more than just monetary. Technology is now included because technology can replace employment. If people decide to save, it can affect both employment and the goods that can be reduced. There are many other things that can affect the maximizing of sustainable output. The cause-effect chain through is that policy can have an effect on banks and money supply. The monetary policy also has an effect the way consumers spending and the interest rates that are given by banks. It can also affect the way people invest. The major strengths of monetary policy is that it stable prices. When inflation rises faster than expected, the Fed may sell government bonds to take money out of circulation or raise short-term interest rates (Federal Reserve Bank of San…arrow_forwardWhy is it important to be aware of the different monetary theories?arrow_forward
- How does monetary policy handle the macroeconomic failures of inflation?arrow_forwardSuppose 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?arrow_forwardThe result of all the above is a “Great Recession.” Under a recession, output and incomes decrease, and unemployment increases. The Federal Reserve’s states that it must pursue objectives of full employment and price stability. When unemployment becomes problematic should the Federal Reserve conduct expansionary or contractionary monetary policy?arrow_forward
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