Suppose that the central reacts to a series of negative real shocks by increasing the money supply every time, what will happen to the price level? And the inflation rate?
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Suppose that the central reacts to a series of negative real shocks by increasing the money supply every time, what will happen to the price level? And the inflation rate?
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- is deflation worse than inflation and what has been the European Central Bank (ECB) doing to get rid of deflation? please answer brieflyWhy do some economists believe that it may be necessary to live with a certain amount of inflation in order to keep the unemployment rate at a low level?Above is a graphical model of the AS-AD. In this model the initial level of the economy is at the low output and low inflation. Describe what happens to the economy when the Central Bank decides to lower interest rate and most likely this will lead to an increase in money supply thereafter. a. What happens to the aggregate demand? b. What happens to the level of output? c. What happens to the price level? d. Effect of the monetary policy made by the Central Bank?
- Consider an economy that starts out in steady state when the central bank decides to make the inflation target more ambitious. Analyse the effects of a decrease in the inflation target from ? to . Explain the mechanisms behind the adjustment to the new steady state.In the “Classical Theory of Inflation”, what determines the price level and the value of money? Explain using a supply and demand plot.Discuss whether it is possible for policymakers to trade off more inflation for higher output in the short run and the long run. Explain from the new classical and new Keynesian perspective.
- In what sense is inflation like a tax? How does thinking about inflation as a tax help explain hyperinflation?Suppose velocity rises and the money supply falls. How will things change in the AD–AS framework if a change in the money supply is completely offset by a change in velocity? Check all that apply. The increase in velocity could shift the AD curve to the left by the same amount as the fall in the money supply shifts the AD curve to the right. Changes in the money supply would have no effect on Real GDP, the short-run price level, nor the long-run price level. A change in the money supply would decrease Real GDP, the short-run price level, and the long-run price level. The increase in velocity could shift the AD curve to the right by the same amount as the fall in the money supply shifts the AD curve to the left.