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- Suppose the Federal Reserve ("the Fed") shifts to a contractionary monetary policy by selling 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 contractionary 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 INTEREST RATE (Percent) 15 24 0 0 300 600 Money Supply 900 Money Demand 1200 1500 1800 QUANTITY OF MONEY (Billions of dollars) Money Demand -0- Money Supply The following graph shows the demand for investment. Show the short-run effect of the Fed's contractionary 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. INTEREST RATE…In the figure at right, assume the economy starts out in equilibrium at point d. If the Fed increases the money supply so that the new aggregate demand curve is AD3, then the new short-run equilibrium will be at point A. i. O B. c. C. b. D. a. Price Level 130 120 100 e b LRAS 9 с SRAS₁ SRAS₂ AD₁ Real GDP per Year ($ trillions) SRAS3 AD3 AD₂What type of policy are this using (expansionary or contractionary)? How will it impact unemployment, GDP, inflation? How will it impact aggregate supply and demand? Will these changes harm our economy? Are they worth it?
- 9. Which of the following will result in expansionary monetary or fiscal policy being the LEAST effective in increasing real GDP? A. The LRAS curve has a negative slope B. Aggregate demand is less elastic than aggregate supply C. Wages and prices are very flexible and change quickly in reaction to policy changes D. The SRAS curve is perfectly elasticIn order to combat inflation, the Fed will ________ the federal funds rate thereby ________ the quantity of money. a. raise; increase b. lower; increase c. raise; decrease d. lower; decreaseSuppose that changes in bank regulations expand the availability of credit cards so that people need to hold less cash. a. How does this event affect the demand for money? b. If the Fed does not respond to this event, what will happen to the price level? c. If the Fed wants to keep the price level stable, what should it do? (Please show me the graphs. Explanations do not need to be specific.)
- Consider the following table: Year 2012 2013 Potential GDP $14.9 trillion $15.3 trillion Real GDP $14.9 trillion $15.2 trillion Price Level 110 112 What can we expect from the Federal Reserve Bank if it seeks to move the economy in the direction of long-run macroeconomic equilibrium? OA. The Fed will pursue a contractionary monetary policy. B. The Fed will pursue a contractionary fiscal policy. c. The Fed will pursue an expansionary monetary policy. OD. The Fed will pursue an expansionary fiscal policy. If the Fed's policy is successful, what is the effect on the following indicators? Actual real GDP: Potential real GDP: Price level: Unemployment:If there is a temporary demand shock (the demand decreases) and the Fed or the government decides to “do nothing” and to wait for the economy to “fix itself,” will the curve(s) that automatically shifted will shift______?Group of answer choices 1To the left. 2To the right. 3That curve(s) could shift in either direction. 4That curve(s) does not shift.What trade offs does the Fed face, particularly in the short run in attempting to reach its goals? 1. In attempting to reach high employment, the Fed would pursue expansionary monetary policy, but this policy could cause lower economic growth 2. In attempting to reach high economic growth, the Fed would pursue contractionary monetary policy but this policy could cause higher unemployment 3. In attempting to reach high econmic growh or high employment, the Fed would pursue expansionary monetary policy, but this policy could cause higher inflation 4. In attempting to reach high economic growth, the Fed would pursue expansionary monetary policy, but this policy could cause higher unemployment
- If the Bank of Canada buys government securities from the chartered banks when the SRAS is relatively flat, what should we expect to happen to the price level and real GDP? a. Price level should rise a little and real GDP should rise substantially. b. Price level should fall a little and real GDP should rise a little. c. Price level should rise a little and real GDP should fall a little. d. Price level should fall a little and real GDP should rise substantially.2. Draw a graph of the AD/AS model and the money market. A stretch of nice weather, combined with increased optimism about the future of the economy, has resulted in the interest rates dropping a bit while output grew. Draw this change in the AD/AS model, and draw how the change in the AD/AS model affects the money market. If the money market is affected the way you described above, what should the Fed do to the money supply to maintain stable prices? Draw in your graph what you think the Fed should do.When the Fed controls the rate of growth of the money supply to foster macroeconomic stability, this is called: A. Fiscal Policy B. Monetary Policy C. Money Supply Policy D. Fed Policy