Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 16.3, Problem 3ST
To determine
Changes in the real GDP and price level in the short run and long run when the policy is incorrectly anticipated.
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Suppose the economy is initially at a long-run equilibrium. The Fed then increases the money supply. In the following three diagrams, assume the resulting inflation is unexpected.
In what way might society gain if the Fed implements an anti-recessionary policy
instead of simply permitting long-run adjustments to take place?
The Fed's policy can shorten the adjustment period.
The Fed's policy can reduce unemployment sooner.
The Fed's policy can move the economy to long-run equilibrium sooner.
All of the above.
The Fed increased the target rate of the federal funds rate nine times since December 2015 through December 2018. An increase in the targeted rate implies a reduction in the growth rate of the money supply. Use the rational expectations AD-AS model to show and explain how this policy could affect Y, N, W/P, r, and P in the short and long runs. Use two scenarios: a) Firms accurately anticipate the change in P; b) They initially underestimate the change in P. What are the implications for monetary policy of the rational expectations model? Many critics said that the Fed's policy move would reduce economic growth. How can their arguments be countered? Note that the Fed has been very public about announcing its policy decisions since 1994.
Chapter 16 Solutions
Macroeconomics
Ch. 16.2 - Prob. 1STCh. 16.2 - Prob. 2STCh. 16.2 - Prob. 3STCh. 16.3 - Prob. 1STCh. 16.3 - Prob. 2STCh. 16.3 - Prob. 3STCh. 16.5 - Prob. 1STCh. 16.5 - Prob. 2STCh. 16 - Prob. 1QPCh. 16 - Prob. 2QP
Ch. 16 - Prob. 3QPCh. 16 - Prob. 4QPCh. 16 - Prob. 5QPCh. 16 - Prob. 6QPCh. 16 - Prob. 7QPCh. 16 - Prob. 8QPCh. 16 - Prob. 9QPCh. 16 - Prob. 10QPCh. 16 - Prob. 11QPCh. 16 - Prob. 12QPCh. 16 - Prob. 13QPCh. 16 - Prob. 14QPCh. 16 - Prob. 15QPCh. 16 - Prob. 1WNGCh. 16 - Prob. 2WNGCh. 16 - Prob. 3WNGCh. 16 - Prob. 4WNGCh. 16 - Prob. 5WNG
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