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In one version of the monetarist model, we said that the velocity of money, V, is treated as constant (as an approximation of reality). Also, recall that we said monetarists assume that the short-run
MV≡PQ
An increase in government spending would
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- In one version of the monetarist model, we said that the velocity of money, V, is treated as constant (as an approximation of reality). Also, recall that we said monetarists assume that the short-run Aggregate Supply curve is upward sloping (i.e., real GDP, Q, is not fixed in the short run), but the Long-run Aggregate Supply curve is vertical (as in our self-regulating model). Consider the equation of exchange, MV≡PQ (with V treated as fixed). Under the assumptions in this question, Group of answer choices A) none of the other options. B) if the money supply (M) were to increase by x%, the aggregate price level (P) would increase by x%. C) if the money supply (M) were to increase by x%, real GDP would increase by x%. D) if the money supply (M) were to increase by x%, the aggregate price level (P) would increase by more than x%. E) if the money supply (M) were to increase by x%, nominal GDP would increase by x%.In the monetary intertemporal model, assume that money supply is always fixed. Suppose that there is an increase in real wage. How does this change affect interest rates (both real and nominal), price level, employment, total factor productivity and equilibrium output? Carefully explain your answers. b) Suppose that, in a liquidity trap, bank reserves are less liquid than government debt. If the Central Bank conducts an open market purchase of government debt, what is the effect on price level? Use an appropriate set of diagram to explain your answer.Boblandia produces no oil. It starts at potential GDP with inflation equal to the Central Bank's inflation target. Boblandia then sees a significant increase in the price of oil. Which of the following is true (according to our models) if the Central Bank engages in inflation targeting? The Central Bank will enact expansionary monetary policy. This action will put upward pressure on read GDP. The Central Bank will enact expansionary monetary policy. This action will put downward pressure on read GDP. The Central Bank will enact contractionary monetary policy. This action will put upward pressure on read GDP. The Central Bank will enact contractionary monetary policy. This action will put downward pressure on read GDP.
- Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that, due to increased instability in the financial markets, a decrease in investor and consumer confidence occurs. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose the Federal Reserve wants the economy to return to full-employment as quickly as possible. Should the Fed intervene? If so, show the impact of successful monetary policy on your graph. Label this new equilibrium point "3."Read the following premise carefully and answer the questions specifically and in detail. You must answer the request with the correct information, showing that you understand and can properly apply macroeconomic concepts. Try to address all elements of each question and always express the answers in your own words. Faced with an instability of economic growth caused by a recession or accelerated inflation, the Fed uses the open market operation to increase or decrease the available reserves of commercial banks which, in turn, will affect the amount of money available in the economy . In addition to the open market operation, the Fed has other tools available to promote growth, sustainability, and economic stability in a country. These tools have been used historically; A suitable example was the 2008 mortgage debt crisis. 1. Explain in detail monetary policy, its role and its effects on short and long-term economic fluctuations. Use the aggregate demand and supply model presented in…Planned aggregate expenditure in the fictitious country "Alpha" depends on real GDP and the real interest rate according to the following equation: PAE= 2,000 + 0.75 Y – 1,000r. The Alpha Bank, the country's central bank, has announced that it will set the real interest rate according to the policy reaction function found the the first two columns of the table below. For the rates of inflation given, find autonomous expenditure and short-run equilibrium output in Alpha. Autonomous Inflation rate, n Real interest rate, r expenditure Equilibrium output e.00 0.01 0.01 0.02 0.02 0.03 0.03 0.04 0.04 0.05 Using the data above, graph the AD curve.
- Which of the following is NOT an example of monetary policy to restrict aggregate demand? a)Raising interest rates b)Reducing money supply c)Rationing credit d)Increasing income taxHello, 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?Consider the AD-AS model discussed during the lectures. Assume that the aggregate demand curve is given by Y = 8 - 0.5π, that the long run aggregate supply curve is given by Yp = 7, that the short run aggregate supply curve is given by π = π_expect + 0.3(Y - Yp), and that the monetary rule is given by r = 1 + 0.3π. b) Suppose the economy is in equilibrium at the potential level of output, with inflation expectations equal to actual inflation, which equals 2%. A financial crisis hits the economy. Use the model to interpret what happens in the short run and in the long run if the central bank does not intervene exogenously with an expansionary monetary policy.
- Suppose the Federal Reserve ("the Fed") shifts to an expansionary monetary policy by buying bonds through open-market operations. Assume that this policy is unanticipated. This problem will work through the short-run effects of this move. The following graph shows the money demand and money supply curves. Show the effect of the Fed's expansionary monetary policy by shifting one or both of the curves, and ignore any potential feedback effects. As a result of the Fed's policy, the interest rate to . Money DemandMoney Supply03006009001200150018006543210INTEREST RATE (Percent)QUANTITY OF MONEY (Billions of dollars)Money Demand Money Supply 900, 3 The following graph shows the demand for investment. Show the short-run effect of the Fed's expansionary monetary policy by shifting the curve or moving the point along the curve. Again, ignore any potential feedback effects. Be sure the new interest rate corresponds to the interest rate you have on the top graph.…Consider the AD-AS model discussed during the lectures. Assume that the aggregate demand curve is given by Y=8-0.5 π, that the long run aggregate supply curve is given by Yp=7, that the short run aggregate supply curve is given by π = π_expect + 0.3(Y-Yp), and that the monetary rule is given byr=1+0.3 π. Suppose the economy is suffering a decrease in the potential level of output, due to some ill-designed new regulation. According to the AD- AS model, what is more suitable to offset the subsequent decline in output, an expansionary monetary policy or an expansionary fiscal policy?Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. The quantity of physical capital The size of the labor force The level of technological knowledge The inflation rate Suppose the economy produces real GDP of $60 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve on the graph. Suppose the government passes a law that significantly increases the minimum wage. The policy will cause the natural rate of unemployment to (Rise/fall), which will: Not affect the long-run aggregate supply curve Shift the long-run aggregate supply curve to the right Shift the long-run aggregate supply curve to the left In the following table, determine how each event affects the position of the long-run aggregate supply (LRAS) curve. Direction of LRAS Curve…
