Suppose that a country’s inflation rate increases sharply.
Explain what happens to inflation tax on the...
Suppose that a country’s inflation rate increases sharply.
Explain what happens to inflation tax on the holders of money? . Can you think of anyway in which holders of
savings accounts are hurt by the increases in the inflation Rate?
What happens to the actual inflation rate with respect to the
expected inflation rate if the actual unemployment is greater or
less than the natural employment
Suppose that the money supply increases substantially. Explain
what happens throughout the following steps.
Suppose that prior to the increase in
the money supply, equilibrium GDP was equal to potential GDP.
What type of output gap now exists? If potential GDP does
not increase, what will happen to equilibrium GDP in the long
run?
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Based on your answers above,
can expanding the money supply drive long-run growth? What
is this relationship called?
Suppose that the money supply increases substantially. Explain
what happens throughout the following steps.
a. Explain how the change
in the interest rate affects international demand for Canadian
financial assets. How does this then affect the exchange
rate?
b. What effect does the
change of the exchange rate have on net exports
c. How
do the combined changes in consumption, investment, and net exports
affect the AE curve and the AD curve
d. Suppose that
prior to the increase in...
Everything else constant, inflation
Leads to an increase in a country’s net exports.
Increases firms’ inventories below the desired level.
Causes a movement along the aggregate demand curve, while
shifting the expenditure line downward.
a and c.
All of the above.
Using the model that predicts the inflation and unemployment
rate, show what happens when there is a decrease in aggregate
demand, and then the government conducts perfect counter-cyclical
policy (before expectations adjust)
Explain what happens to the output gap,
unemployment, and inflation in
the short run if there is a permanent income tax cut implemented by
the federal government. You do not need to draw any graphs, but
thinking about the short run model will help. Be sure to explain
which part of IS/MP/PC is affected and why. You may start with an
economy at full employment and inflation at the central bank
target. Also, discuss what the central bank is likely...
Explain what happens to the output gap,
unemployment, and inflation in
the short run if there is a permanent income tax cut implemented by
the federal government. You do not need to draw any graphs, but
thinking about the short run model will help. Be sure to explain
which part of IS/MP/PC is affected and why. You may start with an
economy at full employment and inflation at the central bank
target. Also, discuss what the central bank is likely...