Question

In: Economics

16) If the Fed makes an open market ________ of government securities, the federal funds rate...

16) If the Fed makes an open market ________ of government securities, the federal funds rate will ________ as the quantity of money ________.

A) purchase; rise; increases

B) sale; fall; increases

C) purchase; fall; decreases

D) sale; rise; decreases

17) If the Fed makes an open market ________ of government securities, the federal funds rate ________ and the immediate impact is to shift the aggregate ________ curve.

A) purchase; falls; demand

B) sale; falls; demand

C) sale; rises; supply

D) purchase; rises; supply

18) If the Fed makes an unexpected open market ________ of government securities, the aggregate ________ curve shifts rightward and ________.

A) sale; supply; the short-run Phillips curve shifts upward

B) purchase; demand; the short-run Phillips curve shifts downward

C) sale; demand; there is a movement along the short-run Phillips curve

D) purchase; demand; the long-run Phillips curve shifts rightward

19) When the Fed enacts monetary policy, in the short run it changes

A) the AD curve.

B) the SAS curve.

C) both the AD and SAS curves.

D) potential GDP.

20) If the economy is at potential GDP and the Fed makes an open market sale of government securities, in the long run the aggregate ________ curve shifts ________ and the price level ________.

A) demand; rightward; rises

B) supply; leftward; rises

C) demand; leftward; falls

D) supply; leftward; falls

please answer everything and correct thankyou

Solutions

Expert Solution

(16) (D)

An open market sale (purchase) of securities will decrease (increase) money supply, which increases (decreases) interest rate.

(17) (A)

Lower interest rate increases investment, increasing aggregate demand and shifting AD curve rightward.

(18) (B)

Open market purchase increases aggregate demand, shifting AD curve rightward, which increases price level, causing SR Philips Curve to shift downward.

(19) (A)

Monetary policy changes aggregate demand, shifting AD curve.

(20) None of the options is correct. The correct answer should be: Supply, Rightward, Falls. Explained below:

Open market sale decreases aggregate demand. AD shifts left, decreasing price level. In long run, lower price level decreases production cost which increases firm output. Aggregate supply rises, shifting SRAS curve rightward which further decreases price level.

In following graph, AD0, LRAS0 and SRAS0 are initial aggregate demand, long-run aggregate supply and short-run aggregate supply curves intersecting at point A with initial price level P0 and real GDP (potential GDP) Y0. The open market sale decreases aggregate demand, shifting AD curve leftward, decreasing both price level and real GDP in short run. In the graph, AD0 shifts left to AD1, intersecting SRAS1 at point B with lower price level P1 and lower real GDP Y1.

In long run, SRAS0 shifts right to SRAS1, intersecting AD1 at point C with further lower price level P2 and real GDP restored to Y0.

Rahul Sunny answered 8 months ago
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