If the Federal Reserve decreases the rate at which it increases the money supply, then unemployment...

If the Federal Reserve decreases the rate at which it increases the money supply, then unemployment is higher in __________.

Group of answer choices

the long run and the short run

the long run but not the short run

the short run but not the long run

neither the short run nor the long run

Expert Solution

If the Federal Reserve decreases the rate at which it increases the money supply there will be be decline in in the rate of growth of nominal GDP or the rate at which nominal GDP Increases in the short run. Thus, there will be unemployment. In the short run there is a Negative impact of a decrease in the rate at which Federal Reserve increases the money supply, on both prices and real GDP. Thus, Unemployment would Decrease. But in the long run only the prices will be affected. There will not be any effect on the rate of growth of real GDP and will not be any effect on Unemployment in the long run.

Therefore, if the Federal Reserve decreases the rate at which it increases the money supply then unemployment is higher in short run but not in the long run because in the long run impact of Federal Reserve action would be on the rate of growth of price level only.

Hence third option is correct i.e, the short run but not the long run.

Rahul Sunny answered 7 months ago

How the Federal Reserve System increases or decreases the interest rate and affects the money supply?...

How the Federal Reserve System increases or decreases the interest rate and affects the money supply? Just need a few sentences and maybe use some functions.

1. If the Federal Reserve decreases the money supply to raise the federal funds rate, ceteris...

1. If the Federal Reserve decreases the money supply to raise the federal funds rate, ceteris paribus, then a. The value of the U.S. dollar will increase in foreign exchange markets b. Economic output will increase c. The economy will experience inflation d. The unemployment rate will fall e. The value of the U.S. dollar will decrease in foreign exchange markets 2. When the short-run aggregate supply (SRAS) curve is steeper, expansionary monetary policy ________ in the short run, and...

The federal reserve decreases money supply. In the short run: - Draw an IS/LM graph to...

The federal reserve decreases money supply. In the short run: - Draw an IS/LM graph to show the effect of this decrease. -Effects of this policy regarding interest rates, investment, income? What variable links the economy in the short run and the long run? What happens to this variable over time given the monetary policy? Draw the aggregate demand and corresponding aggregate supply curves in the short run and long run. Show the any changes due to this policy. What...

The change in money supply affects the economic agents. Suppose the Federal Reserve increases the money...

The change in money supply affects the economic agents. Suppose the Federal Reserve increases the money supply to boost aggregate demand during recessionary pressure. How does the increase in money supply affect consumer spending and investment? How does it affect the firm or organization you work for? How do the Federal Reserve policies affect us as individuals (households)?

1. When the Federal Reserve decreases the required reserve ratio, A.The money supply will increase. B.The...

1. When the Federal Reserve decreases the required reserve ratio, A.The money supply will increase. B.The money supply will decrease. C.There is no effect on the money supply. D.Not enough information is given. 2. The United States is divided into ___ Federal Reserve Districts. The Federal Reserve Bank's Board of Governors consists of ___ members appointed by the president of the U.S. to 14-year, non-renewable terms. One of the board members is appointed to a ___ year, renewable term as...

13. Suppose the Federal Reserve increases the U.S. money supply in an effort to prevent the...

13. Suppose the Federal Reserve increases the U.S. money supply in an effort to prevent the U.S. economy from slipping further into recession. a. According to the Quantity Theory of Money, what will the increased money supply do to the price of goods in the United States in the long run, all else equal? b. According the theory of PPP, what will happen to the exchange value of the U.S. dollar as a result, all else equal? In particular, would...

When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy...

When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the short-run Phillips curve to a point with higher inflation and lower unemployment If the Federal Reserve increases the rate of money growth and maintains it at the new higher rate, eventually expected inflation will increase, and the short-run Phillips curve will shift upward When an adverse supply shock shifts to the short-run aggregate supply curve to the left, it also shifts the...

Suppose the European Central Bank decreases the growth rate of their money supply and the Federal...

Suppose the European Central Bank decreases the growth rate of their money supply and the Federal Reserve simultaneously decreases the growth rate of money supply as well. Working through the analytics involved explain the impact these policy interventions will have on the dollar-euro exchange rate.

4. The Federal Reserve and the money supply Suppose the money supply (as measured by checkable...

4. The Federal Reserve and the money supply Suppose the money supply (as measured by checkable deposits) is currently $300 billion. The required reserve ratio is 25%. Banks hold $75 billion in reserves, so there are no excess reserves. The Federal Reserve ("the Fed") wants to decrease the money supply by $32 billion, to $268 billion. It could do this through open-market operations or by changing the required reserve ratio. Assume for this question that you can use the oversimplified...

Explain using the equation for aggregate demand what happens when the Federal Reserve increases the money supply.

Question