Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 33, Problem 9SPPA
To determine
To explain:
The effect of reducing the federal fund rate by the Central bank and whether lowering the interest rate can be recommended by the central bank and the reason for it.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Money Supply
Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent.
Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium.
Now adjust the graph to show the new long-run equilibrium.
What causes the economy to move from its short-run equilibrium to its long-run equilibrium?
1. The government increases spending to increase aggregate demand.
2. The government increases taxes to curb aggregate demand.
3. Nominal wages, prices, and perceptions adjust upward to this new price level.
4. Nominal wages, prices, and perceptions adjust downward to this new price level.
Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the decrease in the money supply? Check all that apply.
1. Nominal wages at the initial equilibrium are equal to nominal wages at the new short-run…
For the January 2020 Press Release, answer the following question.A. For Column 8, complete the range of the Federal Funds Target AND the % change from the previous release.B. For Column 9, decide whether the Fed is buying or selling loans and whether they have increased or decreasedthe amount.
Which of the following describes the chain of events the Central bank uses to fight recession?
A. Raise the monetary policy rate target, sell government securities, decrease reserves and loans, increase aggregate demand.B. Raise the monetary policy rate target, buy government securities, increase reserves and loans, decrease aggregate demand.C. Lower the monetary policy rate target, buy government securities, decrease reserves and loans, decrease aggregate demand.D. Lower the monetary policy rate target, buy government securities, increase reserves and loans, increase aggregate demand.
Chapter 33 Solutions
Foundations of Economics (8th Edition)
Ch. 33 - Prob. 1SPPACh. 33 - Prob. 2SPPACh. 33 - Prob. 3SPPACh. 33 - Prob. 4SPPACh. 33 - Prob. 5SPPACh. 33 - Prob. 6SPPACh. 33 - Prob. 7SPPACh. 33 - Prob. 8SPPACh. 33 - Prob. 9SPPACh. 33 - Prob. 10SPPA
Ch. 33 - Prob. 11SPPACh. 33 - Prob. 1IAPACh. 33 - Prob. 2IAPACh. 33 - Prob. 3IAPACh. 33 - Prob. 4IAPACh. 33 - Prob. 5IAPACh. 33 - Prob. 6IAPACh. 33 - Prob. 7IAPACh. 33 - Prob. 8IAPACh. 33 - Prob. 9IAPACh. 33 - Prob. 10IAPACh. 33 - Prob. 11IAPACh. 33 - Prob. 12IAPACh. 33 - Prob. 1MCQCh. 33 - Prob. 2MCQCh. 33 - Prob. 3MCQCh. 33 - Prob. 4MCQCh. 33 - Prob. 5MCQCh. 33 - Prob. 6MCQCh. 33 - Prob. 7MCQ
Knowledge Booster
Similar questions
- Assume a country’s economy is currently in recession. Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following. Current real output, labeled Y1, and current price level, labeled PL1 Full employment output, labeled Yf Identify one action the central bank can take to help the economy recover from the recession. Draw a correctly labeled graph of the money market, and show the impact of the central bank’s action identified in part (b) on the nominal interest rate. On your graph for part (a), show the effect of the central bank’s action identified in part (b) on real output and the price level. Assume there is an increase in business confidence as a result of the central bank’s action. What will happen to the demand for capital goods? Draw a correctly labeled graph of the loanable funds market, and show the effect of the change identified in part (e)(i) on the real interest…arrow_forwardAssume a country’s economy is currently in recession. Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following. Current real output, labeled Y1, and current price level, labeled PL1 Full employment output, labeled Yf Identify one action the central bank can take to help the economy recover from the recession. Draw a correctly labeled graph of the money market, and show the impact of the central bank’s action identified in part (b) on the nominal interest rate. On your graph for part (a), show the effect of the central bank’s action identified in part (b) on real output and the price level. Assume there is an increase in business confidence as a result of the central bank’s action. What will happen to the demand for capital goods? Draw a correctly labeled graph of the loanable funds market, and show the effect of the change identified in part (e)(i) on the real interest…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_forward
- Suppose government spending increases. Would the effect on aggregate demand be larger if the central bank held the money supply constant in response or if the central bank chose to maintain a fixed interest rate? Illustrate and explainarrow_forwardSuppose country A has a central bank with full credibility, and country B has a central bank with no credibility.Using a graph of aggregate demand and supply EXPLAIN how the credibility of each country’s central bank affect economic outcomes, if both countries are hit with the same.arrow_forwardIf the Federal Reserve wanted use an open market operation to combat a recession, what would they do, and what would its effect be? The Federal Reserve expands the money supply by 5%. Draw an aggregate supply/aggregate demand diagram to show the short run effect of this scenario. What happens to price and output? Which curve shifts? Which component of that curve accounts for the shift?arrow_forward
- Classify each description according to whether or not it can cause aggregate demand to increase. Answer the bank in the images below. Can cause aggregate demand to increase Will not cause aggregate demand to increasearrow_forward37. Supply-side economics is the school of thought that advocates the use of A) monetary policy to stimulate long-run aggregate supply. B) fiscal policy to stimulate long-run aggregate demand. C) monetary policy to stimulate short-run aggregate demand. D) fiscal policy to stimulate long-run aggregate supply.arrow_forwardMatch the correct policy with its description. Column A 1. 2. 3. 4. During a contraction or recession, the government can do two things: Decrease Taxes Or Increase Spending During a period of excessive inflation (during a period of expansion), the government can do two things: Increase Taxes Or Decrease Spending Increased lending by banks to customers (increased money supply) Lower Interest Rates on loans and bank accounts Increased borrowing from the Fed by banks Decreased lending by banks to customers (decreased money supply) Higher Interest Rates on loans and bank accounts Decreased borrowing from the Fed by banks % 5 M Column B a. Expansionary Fiscal Policy b. Contractionary Monetary Policy c. Contractionary Fiscal Policy d. Expansionary Monetary Policyarrow_forward
- Question 7. Using the models learned in class, graphically illustrate and explain the impact of the following policy and explain your answer. Suppose the Bank of Canada reduces the money supply by 5%. a. What happens to the aggregate demand curves? b. What happens to the level of output and the price level in the short run and in the long run? c. What happens to the real interested rate in the short run and in the long run?arrow_forwardThe graph below shows the long-run aggregate supply (LRAS), the short-run aggregate supply (SRAS), and aggregate demand (AD) curves for a given economy. LRAS 10 Manipulate the curves to show the long run effect of an increase in money supply. 9. SRAS 8. In the long run, an increase in the money supply will result in the following. 6. Real GDP: 3 AD 1 0. 01 1 4 6. 8. 6. 10 Real GDP The aggregate price level decreases stays the same increases 2. 7, 5. Aggregate price levelarrow_forwardSuppose home owners owe $7 trillion in mortgage loans. Instructions: Enter your responses as a whole number. In part b, do not include a negative sign (-) with your answer. a. If the mortgage interest rate is 4 percent, approximately how much are home owners paying in annual mortgage interest? billion b. If the interest rate drops to 2 percent, by how much will annual interest payments decline? $ billion c. How will this change in the interest rate impact aggregate demand? Aggregate demand will [(Click to select)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning