Click on the graph below to make it interactive and answer the following questions.Real interest rate5%4%3%2%1%0%-10%Shift the IS curve to the left until the new output gap is -5%.-5%Unexpected inflation(Inflation - Inflation expectations)1%0%-1%MP curveIS curve5%Output gapPhillips curve-2%-10%-5%0%5% powered bydesmosOutput gapAlter the interactive graph in order to witness how a leftward shift of the IS curve affects the output gap and unexpectedinflation. Use the information to forecast economic outcomes.a. Which of the following could explain the shift witnessed in the IS-MP framework and result in lower unexpectedinflation?Recent legislation that reduced government spending on infrastructure.Recent legislation that reduced taxes.An increase in financial market risk, leading to a negative output gap.Decreased consumer wealth stemming from depressed asset prices.Decreased business confidence recently revealed in a recent business confidence index estimate.Incorrect

IS-MP curve i.e. Investment saving and monetary policy curve. This curve represents relationship…

inflation. Use the information to forecast economic outcomes. дар a. Which of the following could explain the shift witnessed in the IS-MP framework and result in lower unex inflation? Recent legislation that reduced government spending on infrastructure. Recent legislation that reduced taxes. An increase in financial market risk, leading to a negative output gap. Decreased consumer wealth stemming from depressed asset prices. Decreased business confidence recently revealed in a recent business confidence index estimate. Incorrect

inflation. Use the information to forecast economic outcomes. дар a. Which of the following could explain the shift witnessed in the IS-MP framework and result in lower unex inflation? Recent legislation that reduced government spending on infrastructure. Recent legislation that reduced taxes. An increase in financial market risk, leading to a negative output gap. Decreased consumer wealth stemming from depressed asset prices. Decreased business confidence recently revealed in a recent business confidence index estimate. Incorrect

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter14: Money And The Economy

Section: Chapter Questions

Problem 10QP

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How do you know if the Fed's actions achieve the goal of stable prices? The goal of stable prices is achieved when _______. A. the prices of food, clothing, and shelter are stable B. the PCEPI inflation rate excluding food and energy prices is 2 percent a year C. the general level of prices is changing, but we can accurately predict the rate of change D. the inflation rate is zero percent a year
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2. If a higher inflation is expected, what would you expect to happen to the shape of theyield curve? Why?
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Suppose the nominal interest rate on savings accounts is 11% per year, and both actual and expected inflation are equal to 2%. Complete the first row of the table by filling in the expected real interest rate and the actual real interest rate before any change in the money supply. Time Period Before increase in MS Immediately after increase in MS Nominal Interest Rate (Percent) 11 11 Expected Actual Inflation Inflation (Percent) (Percent) 2 2 2 to 7 The unanticipated change in inflation arbitrarily harms Expected Real Interest Rate (Percent) Now suppose the Fed unexpectedly increases the growth rate of the money supply, causing the inflation rate to rise unexpectedly from 2% to 7% per year. Actual Real Interest Rate (Percent) Complete the second row of the table by filling in the expected and actual real interest rates on savings accounts immediately after the increase in the money supply (MS). Now consider the long-run impact of the change in money growth and inflation. According to…