An economy is initially in equilibrium at the natural level. The
central bank increases the money...
An economy is initially in equilibrium at the natural level. The
central bank increases the money supply. Graphically illustrate and
explain short-run monetary nonneutrality and long-run monetary
neutrality using the AD–AS model.
Suppose the economy is initially at a long-run equilibrium. Then
the central bank increases the money supply. Assuming any resulting
inflation is unexpected, explain any changes in GDP, unemployment,
and inflation in the short-run that are caused by the monetary
expansion. Explain your conclusions using three diagrams: (i) one
for the IS-LM model, (ii) one for the AD-AS model, and (iii) one
for the Phillips curve.
16. Suppose the central bank increases the money supply in order
to increase the equilibrium level of GDP. Which of the following
conditions would lead to a large increase in GDP given the increase
in the money supply?
A. A small marginal propensity to consume
B. A very steep investment schedule
C. A very steep money demand schedule
D. All of the above conditions
Assume that the economy is initially at the natural level of
output. A permanent increase in taxes will cause which of the
following?
Question 7 options:
a decrease in the aggregate price level, and no change in output
in the medium run
a reduction in unemployment in the short run
a reduction in output and no change in the aggregate price level
in the short run
no change in investment in the medium run
more than one of the above...
If the central bank increases the money supply, then the nominal
interest rate will ____ and the exchange rate will ____.
A
rise; appreciate
B
rise; depreciate
C
fall; appreciate
D
fall; depreciate
If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?
a. neither output nor the price level
b. both the price level and output
c. the price level but not output
d. output but not the price level
In a modern money economy, the money supply is composed of
central bank issued currency and certain privately issued bank
deposits that are convertible into currency on demand and can be
transferred as payments electronically or by check. Thus, the stock
of money is composed of both central bank notes (currency) and
private bank debts (transaction or checkable deposits). There
exists another class of government issued debts that are promises
to pay fixed amounts of money at a specified time(s)...
In a closed economy, the supply of money may be
controlled by the Central Bank in three ways: Reserve requirements
, Open market operations, Discount rates.
Outline each of the three ways.
1-In the short run, when the central bank increases the quantity
of money, the
A)demand for money decreases.
B)price level decreases.
C)demand for money increases.
D)nominal interest rate falls.
E)quantity demanded of money decreases
2-If the quantity of money supplied ________ the quantity
demanded, in the long run the value of money ________.
a)exceeds; falls as people spend their surplus money
b)exceeds; rises as people buy bonds
c)is less than; falls as people spend their surplus money
d)is less than;...
2. Assume the economy is initially in a short-run equilibrium at
a level of output below the natural rate. a. Use the IS-LM model to
graphically illustrate: i) how the economy will adjust in the
long-run if the no-policy action is taken. ii) the long-run
equilibrium if fiscal policy is used to return the economy to the
natural rate of output. b. Explain how investment, the interest
rate, and the price level differ in the new long-run equilibrium in
the...
If the central bank increases money supply, what
will happen to product/service price in general and interests in
general?
The mechanism of how the change in money supply
influences prices and interest rates should be clearly
explained.