Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 31, Problem 7DQ
To determine
Observation on the
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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?
Why do workers, firms, banks and investors in macroeconomics care about the future rate of inflation?
Hey, I need help with a macroeconomics problem. Thank you in advance!
The questions are based on a Feb 1, 2023 statement by the Federal Reserve (attatched below)
Effects mentioned in question:
- Inflation is expected to increase
- The Committee's choice to raise the target range for the federal funds rate and potentially keep on expanding it in the future recommends that they might be taking a more restrictive stance on monetary policy.
How do the effects you you previously found align with what the Fed was hoping to attain?
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- Fiscal and Monetary Policies Nowadays, many Central Banks use target inflation in their monetary policy framework to achieve a stable and low level of inflation. Related to that, do you agree with the statement that says “by only focusing on achieving inflation target, the Central Bank will not be able to control the economy’s output fluctuation.” Explain your answer by using an appropriate theory, model/equationarrow_forwardWhat happens when an economy was initially in full employment, following a strongly expansionary monetary or budgetary policy?arrow_forwardSuppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that the minimum wage increases to $15 in the United States, which affects the entire labor market and increases the cost of production. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose the Federal Reserve wants to keep prices in the economy as low as possible. Should the Fed intervene? If so, show the impact of successful monetary policy on your graph. Label this new equilibrium point "3."arrow_forward
- The mandate of the South African Reserve Bank (SARB) states that “the Reserve Bank is required to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa”. There are several macroeconomic determinants that in many ways affect the outlook of the economy, such as inflation, growth, interest rates, unemployment and exchange rates. There has been an ongoing conversation among economists and politicians about the mandate of the SARB. Do you think that the mandate of the SARB should change? Support your view.arrow_forwardThe 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_forwardIn 1989 the Government made it legal for banks to offer interest on checking accounts. Before this it was illegal because it could create increased competitiveness between banks and maybe lead to bank failures. Using only the asset market show graphically what we would expect to happen to the quantity of money and the interest rates if it became legal for banks to offer interest bearing checking accounts. What would this do to the overall economy? Why? How would the Federal Reserve (using information from class) stabilize the economy?arrow_forward
- If a nation’s central bank, such as the US Federal reserve, believes the economy is headed toward a recession, what actions should it take?arrow_forwardWhat’s the difference between Nominal and Real variables in monetary policy?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_forward
- 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). 3. What decision did the committee reach regarding the federal funds rate? 4. What two tools would the Federal Reserve use to implement the decision from question 3? Be specific about the direction of the change for both tools.arrow_forwardIn 1966, Milton Friedman wrote, as he often did, some memorable lines that have entered the lexicon of economic quotables. As Friedman correctly put it in a book chapter titled “What Price Guideposts?”: “Inflation is always and everywhere a monetary phenomenon, resulting from and accompanied by a rise in the quantity of money relative to output…. It follows that the only effective way to stop inflation is to restrain the rate of growth of the quantity of money.” While true, Friedman’s classic statement doesn’t tell us anything about what drives the growth of the money supply that fuels inflation. Hyperinflations are rather rare. The first hyperinflation occurred in France, where the mandate collapsed. In August 1796, France’s monthly inflation rate peaked at 304%. Almost half of the 58 recorded hyperinflations occurred in the 1990's and were the result of the funding deficiencies associated with the new post-communist states. Today, there is only one hyperinflation, Venezuela’s. Post…arrow_forwardWhat are the goals of economic policy? Describe each briefly. What policy options does the government and the Feds have at their disposal to counter. Economic recession and inflation. Describe and list each brieflyarrow_forward
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