Question

In: Economics

Monetary Policy If demand is lower than expected, the economy would be experiencing a(an) 1.___________________ gap....

Monetary Policy

If demand is lower than expected, the economy would be experiencing a(an) 1.___________________ gap.

In order to close the gap using monetary policy, the Fed can (buy/sell) 2._____________ U.S. bonds through a process called 3._____________________________.

This would (increase/decrease)4. ______________ the money supply.

This change in the money supply will impact which component of aggregate expenditure? 5.____________________

This will ultimately shift (demand/supply) 6.__________________to the (right/left) 7.____________________ to close the gap.

This will result in (inflation/deflation) 8.___________________________.

Employment will (increase/decrease) 9.________________________.

If demand is higher than expected, the economy would be experiencing a(an) 10.____________________gap.

In order to close the gap using monetary policy, the Fed can (buy/sell) 11._____________ U.S. bonds through a process called 12._____________________________.

This would (increase/decrease) 13.______________ the money supply.

This change in the money supply will impact which component of aggregate expenditure? 14.____________________

This will ultimately shift (demand/supply) 15.__________________to the (right/left) 16.____________________ to close the gap.

This will result in (inflation/deflation) 17.___________________________.

Employment will (increase/decrease) 18.____________________________.

Expert Solution

1. Deflationary gap (as demand is lower than expected)

2. Buy ( to increase money supply in market)

3. Open Market Operations (OMO)

4. Increase (as Fed buying will inject money in market)

5. Consumption ( as more money is available, consumption would increase)

6. Demand (demand increase as comsumption increases)

7. Right ( increase in demand)

8. Inflation ( as more consumption in market)

9. Increase (employment will increase as increase in money supply)

10. Inflationary gap (as demand is higher than expected)

11. Sell ( to decrease money supply in market)

12. Open Market Operations (OMO)

13. Decrease (as Fed selling will suck money from market)

14. Consumption ( as less money is available, consumption would decrease)

15. Demand (demand decrease as comsumption decreases)

16. Left ( decrease in demand)

17. Deflation ( as less consumption in market)

18. Decrease (employment will decrease as decrease in money supply)

Rahul Sunny answered 7 months ago

Q4 Suppose the economy is experiencing a recession and high unemployment. How would a monetary policy...

Q4 Suppose the economy is experiencing a recession and high unemployment. How would a monetary policy address this problem? Be sure to explain clearly the effects on excess reserves, money supply, interest rate and real GDP. You may use diagrams to illustrate your answer better. (10 points)

6. The economy is in an inflationary gap. a) Describe the appropriate monetary policy and the...

6. The economy is in an inflationary gap. a) Describe the appropriate monetary policy and the steps the Bank of Canada takes. b) Draw the AS-AD model, starting in a recessionary gap. Show the effect of the appropriate monetary policy on the diagram. What happens to real GDP, unemployment, and inflation? c) As a result of the monetary policy, do unemployment and inflation move in the same direction or opposite directions?

The economy is in a recessionary gap. a) Describe the appropriate monetary policy and the steps...

The economy is in a recessionary gap. a) Describe the appropriate monetary policy and the steps the Bank of Canada takes. b) Draw the AS-AD model, starting in a recessionary gap. Show the effect of the appropriate monetary policy on the diagram. What happens to real GDP, unemployment, and inflation?

Suppose an economy is experiencing stagflation. What monetary and fiscal policy proposal would you make? How...

Suppose an economy is experiencing stagflation. What monetary and fiscal policy proposal would you make? How would they work? Draw graphs to support your answer.

Question 3: Monetary Policy Suppose the economy is in an inflationary gap, and the Fed responds...

Question 3: Monetary Policy Suppose the economy is in an inflationary gap, and the Fed responds by conducting a contractionary monetary policy. b. Explain what the Fed does if it conducts open market operations to control inflation. c. Explain the effects of this monetary policy on interest rates, business investments, consumption spending, the value of the U.S. dollar, and the value of net exports.

Monetary Policy What are the three tools of monetary policy? During a recessionary gap, as is...

Monetary Policy What are the three tools of monetary policy? During a recessionary gap, as is currently being experienced, as signified by the designation that the economy entered into a recession in February of this year, what can and has the FOMC of the Federal Reserve done with regards to interest rates? How will this change to interest rates affect AE and equilibrium GDP?

Suppose you are recommending monetary policy. The economy is experiencing a sharp and prolonged inflationary trend....

Suppose you are recommending monetary policy. The economy is experiencing a sharp and prolonged inflationary trend. a. What change in open market operations would you recommend? b. Explain how the change you advocate would affect the cash rate c. Explain how the change you advocate would affect the cost and availability of credit d. Use diagrams/graphs of the money market and also AD-AS to support your discussion

Fiscal policy is usually: 1) more political than monetary policy. 2) less political than monetary policy....

Fiscal policy is usually: 1) more political than monetary policy. 2) less political than monetary policy. 3) neutral like monetary policy. 4) having the same impact on all citizens. Consider two competing motorcycle manufacturers, Harley-Davidson and Honda. If Harley-Davidson raises the price of its motorcycles, we can expect: 1)a shift to the right in the supply curve of Hondas and lower prices for Hondas. 2)a shift to the left in the supply curve of Hondas and higher prices for Hondas....

Addressing inflation using Fiscal and Monetary Policy tools. Scenario - The US economy is currently experiencing...

Addressing inflation using Fiscal and Monetary Policy tools. Scenario - The US economy is currently experiencing high rates of inflation. You have Fiscal and Monetary policy tools available to address this problem: Q1: To attack the problem of inflation you must select one Monetary Policy tool and one Fiscal Policy tool. Write down the name of your Fiscal Policy tool and your Monetary Policy tool. Q2: Please explain why you selected the tools that you selected and why you did...

1.On a fully labelled AD/AS diagram, which shows that the economy is experiencing an inflationary gap,...

1.On a fully labelled AD/AS diagram, which shows that the economy is experiencing an inflationary gap, demonstrate what would happen if interest rates increase. Was the policy successful? 2.On a fully labelled AD/AS diagram, which shows that the economy is experiencing a recessionary gap, demonstrate what would happen if a new technology is introduced that makes workers more efficient.