Explain the mechanism how monetary policy (by reducing money supply) can shift the AD to the left! (hint : explain the change in equilibrium both in money market and good market) PLEASE DRAW THE CURVE TOO
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Explain the mechanism how
(hint : explain the change in equilibrium both in
PLEASE DRAW THE CURVE TOO
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- 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.Considering how monetary policy affects the market, which of the following statements is most accurate? There is an indirect impact on aggregate demand by monetary policies. O There is more of an impact on consumption than investments by monetary policies. There is a direct impact on aggregate demand by monetary policies.A country's central bank is engaging in monetary contraction, with M going from M0=40 to M1=20. Its economy is as follows. Goods: slc = 3 MPC = 0.7 G = 10 T = 9 Before the policy, the goods market equilibrium is at Y0 = 54. Financial: I = 18-200r Before the policy, the loans market equilibrium is at r = 4.25% and I = 9.5 Money: M0 = 40 P0 = 2 M/P = 0.02 / (r - Y/5000)^2 and finally, Labor: w = MPL = 0.5 * 4.5 * 16^0.6 / L^0.5 w = EP / P0 * L^0.5 Where workers currently expect the price level of EP=2. There are four endogenous variables that adjust in response to shock/policy: Y, I, r, P. The policy variable of interest is M. Therefore, let's approach our solution by first recognizing that all other letters are just constants and plug them in. For example: Y = 2 + 0.5(Y-6)+7+I becomes Y = 12 + 2*I First, express the goods market as expenditure being a linear function of investment I of the form: Y = a + b*I where a and b are parameters (numbers). 1. How does the monetary…
- A country's central bank is engaging in monetary contraction, with M going from M0=40 to M1=20. Its economy is as follows. Goods: slc = 3 MPC = 0.7 G = 10 T = 9 Before the policy, the goods market equilibrium is at Y0 = 54. Financial: I = 18-200r Before the policy, the loans market equilibrium is at r = 4.25% and I = 9.5 Money: M0 = 40 P0 = 2 M/P = 0.02 / (r - Y/5000)^2 and finally, Labor: w = MPL = 0.5 * 4.5 * 16^0.5 / L^0.5 w = EP / P0 * L^0.5 Where workers currently expect the price level of EP=2. How does the monetary contraction directly and immediately affect the goods market? There are four endogenous variables that adjust in response to shock/policy: Y, I, r, P. The policy variable of interest is M. Therefore, let's approach our solution by first recognizing that all other letters are just constants and plug them in. For example: Y = 2 + 0.5(Y-6)+7+I becomes Y = 12 + 2*I First, express the goods market as expenditure being a linear function of investment I of the form: Y = a…A country's central bank is engaging in monetary contraction, with M going from M0=40 to M1=20. Its economy is as follows. Goods: slc = 3 MPC = 0.7 G = 10 T = 9 Before the policy, the goods market equilibrium is at Y0 = 54. Financial: I = 18-200r Before the policy, the loans market equilibrium is at r = 4.25% and I = 9.5 Money: M0 = 40 P0 = 2 M/P = 0.02 / (r - Y/5000)^2 and finally, Labor: w = MPL = 0.5 * 4.5 * 16^0.6 / L^0.5 w = EP / P0 * L^0.5 Where workers currently expect the price level of EP=2. - There are four endogenous variables that adjust in response to shock/policy: Y, I, r, P. The policy variable of interest is M. Therefore, let's approach our solution by first recognizing that all other letters are just constants and plug them in. For example: Y = 2 + 0.5(Y-6)+7+I becomes Y = 12 + 2*I First, express the goods market as expenditure being a linear function of investment I of the form: Y = a + b*I 1. How does the monetary contraction directly and immediately affect the…Question 6 If the economy were represented by the following graph, what is the appropriate monetary policy? Price Level LRAS SRAS El P1 AD Real GDP Y1 Yp buy government bonds from commercial banks, thereby lowering interest rates and increasing aggregate demand. Ob sell government bonds to commercial banks, thereby lowering interest rates and increasing aggregate demand buy government bonds from commercial banks, thereby increasing interest rates and decreasing aggregate demand O d) sell government bonds to commerical banks, thereby increasing interest rates and decreasing aggregate demand.
- Briefly explain whether each of the following statements is true or false 3. In the AD-AS model, monetary policy can stabilize both the price level and real GDP following a shock to aggregate demand.i need help qith the last 2 questions Suppose the U.S. economy is initially at long run equilibrium, when there is an unexpected economic boom across Europe in the country.How does this impact the U.S. economy? (write out either "inflationary" or "recessionary"inflationary In response to this what monetary policy would the Fed employ? (write one of the following: "raise taxes", "lower taxes", "raise money supply", or "lower money supply"lower money supplyWhat is the most likely way the Fed will accomplish this change in the monetary policy? (write one of the following: "buy securities", "sell securities", "raise discount rate", "lower discount rate", or "legislation"sell securitiesThis action by the Fed will cause interest rates to _______. (Write out "increase" or "decrease"The end result of the monetary policy is a shift of which curve in which direction. (Write out one of the following: "AD right", "AD left" "AS left", "AS right"3. "Inflation is much too high and we understand the hardship it is causing. We're moving expeditiously to bring it back down," Fed Chairman Jerome Powell said during a news conference. (Source: CNBC.com) Given the above statement, suggest a policy which can be implemented by the Fed to address the inflationary pressure. Assume that the Fed were to adopt required reserve ratio, using AD-AS model, explain the outcomes of this move on the economy in the short run. (You may exclude LRAS curve in your model)
- Determine how each of the following monetary or fiscal policy would shift the aggregate demand curve. Illustrate and explain the following effect. a. Assuming the economy is under full employment, the central bank receives news of a potential economic boom and has decided on a risky measure by conducting contractionary monetary policy. Illustrate and explain the effect of the policy using AD-AS curve.The possible effect of an expansionary monetary policy would be _______.a. decrease in money supply and decrease interest ratesb. increase in bank revenues through increase in investmentsc. increase in money supply and decrease in interest ratesd. increase in interest rates and increase in money supply1. Show what the effect of the following factors is on the aggregate demand (AD) curve.a. Expansionary monetary policyb. An increase in taxes 2. Explain the determinants of the aggregate demand (AD) and describe how the AD curvewill shift when one of these determinants changes.