Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 27, Problem 23APA
(a)
To determine
Explain the process of the Fed action reported in the news clip.
(b)
To determine
Illustrate Figure, which shows that the Fed’s believe in state of the economy that was described in news clip.
(c)
To determine
Illustrate Figure of the Fed’s response and its effects.
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Students have asked these similar questions
In early 2017, policymakers at the Federal Reserve forecast that real GDP during 2017 would increase faster than potential GDP and that the inflation rate for the year would be about 1.9 percent.
Source: Federal Open Market Committee, "Advance Release of Table 1 of the Summary of Economic Projections to be Released with the FOMC Minutes," March15, 2017.
Fill in the missing values in the table with estimates that are consistent with these forecasts. Assume that the growth rate for real GDP between 2016 and 2017 is 0.32 percentage points higher than the percentage change in potential output between those years (rounded to two decimal places).
2016
2017
Real GDP
$16.7 trillion
$nothing
trillion
Potential GDP
$16.9 trillion
$17.1 trillion
GDP Deflator
111.5
nothing
(Enter your responses rounded to one decimal place.)
Changing course, Australia raises interest rate
Inflation rate (percent per year)
LRPC
The Reserve Bank of Australia (the central bank) raised its overnight rate
(equivalent to the U.S. federal funds rate) by a quarter of a percentage point, to
3.25 percent a year, amid concerns about rising inflation. The interest rate rise
came earlier than many economists had expected.
5-
Source: New York Times, October 6, 2009
4-
If with the Reserve Bank's "concerns about rising inflation," people increase the
expected inflation rate, explain how the short-run tradeoff will change.
3-
2-
The figure shows Australia's short-run Phillips curve and the long-run Phillips
curve.
1-
SRPC
If the natural unemployment rate remains at 5 percent, show the effect of the rise
in the expected inflation rate in the graph.
0-
6
8.
Draw either a new SRPC curve (SRPC,) or an arrow along the SRPC curve
Unemployment rate (percent of labor force)
showing the direction of change.
>>> Draw only the objects specified in…
consider the money demand function. If the money supply is expected to be decreased in the next month what is the effect on the inflation this month? Describe briefly.
Chapter 27 Solutions
Macroeconomics
Ch. 27.1 - Prob. 1RQCh. 27.1 - Prob. 2RQCh. 27.1 - Prob. 3RQCh. 27.1 - Prob. 4RQCh. 27.2 - Prob. 1RQCh. 27.2 - Prob. 2RQCh. 27.2 - Prob. 3RQCh. 27.3 - Prob. 1RQCh. 27.3 - Prob. 2RQCh. 27.3 - Prob. 3RQ
Ch. 27.3 - Prob. 4RQCh. 27.4 - Prob. 1RQCh. 27.4 - Prob. 2RQCh. 27.4 - Prob. 3RQCh. 27 - Prob. 1SPACh. 27 - Prob. 2SPACh. 27 - Prob. 3SPACh. 27 - Prob. 4SPACh. 27 - Prob. 5SPACh. 27 - Prob. 6SPACh. 27 - Prob. 7SPACh. 27 - Prob. 8SPACh. 27 - Prob. 9SPACh. 27 - Prob. 10APACh. 27 - Prob. 11APACh. 27 - Prob. 12APACh. 27 - Prob. 13APACh. 27 - Prob. 14APACh. 27 - Prob. 15APACh. 27 - Prob. 16APACh. 27 - Prob. 17APACh. 27 - Prob. 18APACh. 27 - Prob. 19APACh. 27 - Prob. 20APACh. 27 - Prob. 21APACh. 27 - Prob. 22APACh. 27 - Prob. 23APACh. 27 - Prob. 24APACh. 27 - Prob. 25APACh. 27 - Prob. 26APA
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- Changing course, Australia raises interest rate The Reserve Bank of Australia (the central bank) raised its overnight rate (equivalent to the U.S. federal funds rate) by a quarter of a percentage point, to 3.25 percent a year, amid concerns about rising inflation. The interest rate rise came earlier than many economists had expected. Source: New York Times, October 6, 2009 If actual inflation had risen prior to the Reserve Bank raising the overnight rate, explain how the short-run tradeoff would change. The figure shows Australia's short-run Phillips curve and the long-run Phillips curve. If the natural unemployment rate remains at 5 percent and the expected inflation rate does not change, show the effect of the rise in the actual inflation rate in the graph. Draw either a new SRPC curve (SRPC₁) or an arrow along the SRPC curve showing the direction of change. 6- 5- 4- 3- 2- 1- Inflation rate (percent per year) LRPC SRPC 9 Unemployment rate (percent of labor force) >>> Draw only the…arrow_forward7. In the Financial Times article "UK businesses expect prices to soar in the coming year" (3 March 2022) we can read: "British businesses expect inflation to rise at its fastest pace for five years, according to a Bank of England survey, [..] the Bank of England have often quoted high business inflation expectations [...] in recent months to support the need for further monetary policy tightening." (a) Explain why the central bank considers business exper decisions on monetary policy. ations when making (b) In February 2022, inflation in the UK was expected to increase to close to 6% in February and March, before peaking at around 7 %% in April. Despite this, the Monetary Policy Committee in the Bank of England increase the policy rate to 0.25% to 0.5%, even if some members recommended an increase to 0.75%. Using the 3-equation model, depict the UK economy in February 2022, and provide some reasons why the Bank of England did not increase the interest rate to 0.75% (or higher).arrow_forwardAmy Coney Barrett puts money into an account at Ruth Bader Ginsburg Bank. 12 months later she sees that she has 6 percent more euros and that her money will buy 4 percent more Ivanka Trump bobbleheads which perfectly track nominal national output (meaning statistically they move together). The nominal interest rate was Question 21 options: 10 percent and the inflation rate was 6 percent. 6 percent and the inflation rate was 2 percent. 4 percent and the inflation rate was 2 percent. 10 percent and the inflation rate was 4 percent.arrow_forward
- Price level (GDP deflator, 2009 = 100) 124 122 120 LRAS 2020 $18.0 LRAS 2021 SRAS2020 SRAS2021 AD 2021 (without policy) AD2021 (with policy) AD 2020 18.4 18.5 Real GDP (trillions of 2009 dollars) a. If the Fed does not take any policy action, what will be the level of real GDP and the price level in 2021? b. If the Fed wants to keep real GDP at its potential level in 2021, should it use an expansionary policy or a contractionary policy? Should the trading desk be buying Treasury bills or selling them? c. If the Fed takes no policy action, what will be the infla- tion rate in 2021? If the Fed uses monetary policy to keep real GDP at its potential level, what will be the inflation rate in 2021?arrow_forwardUse the macroeconomic theories explained in the course to write a paper explaining how the Canadian government used a combination of an easy money policy with an expansionary fiscal policy to reduce the negative effects of Covid-19 on the Canadian economy. Why did these policies helped to create the current inflation. Create your own graphs or refer to graphs in your textbook to illustrate your answer.arrow_forwardIf the U.S. Fed announces to raise the interest rate (i.e. discount rate) by 1% by the end of 2021, what do you expect the impact on the current U.S. inflation? Please explain briefly in the language of macroeconomics.arrow_forward
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