Question

In: Economics

Comment on the ability of a credible nominal anchor to allow policy makers to exploit a...

Comment on the ability of a credible nominal anchor to allow policy makers to exploit a short-run trade-off between unemployment and inflation.

Solutions

Expert Solution

Answered:-
There are two possible anchors used the by the government as signals for showing their committment towards a reform in economic policies. Policy-makers who have a strong commitment and are more willing to bring some reforms in the country, would opt for more visible policies that are made credible using an exchange-rate anchor. In contrast there can be policy-makers who are not careful enough and would not like to carry through with serious reform. These would then opt for noisier signals that include a money anchor.
Now we know that there can be short run tradeoff between unemployment and inflation where expansionary policies reduce unemployment and increase inflation. It then depends on how committed the government is to use these nominal anchors wisely. An increased visibility makes it easier for the public to seek and explore the true nature and spirit of the policies of the government. Policy-maker that are truly committed for bringing out reforms also want this to happen quickly.


Related Solutions

Comment on the ability of a credible nominal anchor to allow policy makers to exploit a...
Comment on the ability of a credible nominal anchor to allow policy makers to exploit a short-run trade-off between unemployment and inflation.
If the public believes the commitment to a nominal anchor to be credible, the effect of...
If the public believes the commitment to a nominal anchor to be credible, the effect of a negative aggregate demand shock is for short-run aggregate supply to be unaffected. Say whether you think the statement is true, false, or uncertain; and support your answer in a few lines.
why is a nominal anchor needed for a central bank to perform its functions efficiently?
why is a nominal anchor needed for a central bank to perform its functions efficiently?
What is the policy mix? Explain . How can policy makers use their policy instruments to...
What is the policy mix? Explain . How can policy makers use their policy instruments to achieve their domestic policy goals? In your answer explain how macro-policy can be used to combat the problems of recession, overheating, and stagflation.
• Should the informal sector be repressed or encouraged by policy makers
• Should the informal sector be repressed or encouraged by policy makers
(1) How can policy makers use their policy instruments to achieve their domestic policy goals? (2)...
(1) How can policy makers use their policy instruments to achieve their domestic policy goals? (2) Explain how macro-policy can be used to combat the problems of recession and problems of overheating.
analyze the comment "follow the money" to understand priorities in public policy analyze the comment "follow...
analyze the comment "follow the money" to understand priorities in public policy analyze the comment "follow the money " in understanding priorities in public policy
You are part of the monetary policy makers in a country facing a depreciation of the...
You are part of the monetary policy makers in a country facing a depreciation of the home currency. There is consensus for the monetary authority to intervene in the foreign exchange market to strengthen the weak home currency. However, there is debate on whether the intervention must be sterilised or non- sterilised. Present your points clearly, illustrating with appropriate diagrams the necessary intervention in the forex market, and distinguishing the effects of sterilised from sterilised intervention, and why you prefer...
How is the Phillips curve derived and what are the implications for policy makers?
How is the Phillips curve derived and what are the implications for policy makers?
QUESTION 13 Economists and policy makers questioned the effectiveness of discretionary fiscal policy during the 1970s...
QUESTION 13 Economists and policy makers questioned the effectiveness of discretionary fiscal policy during the 1970s for all the following reasons except a the difficulty of estimating the natural rate of unemployment b the time lags involved in implementing fiscal policy c the existence of possible feedback effects of fiscal policy on aggregate supply d the distinction between current and permanent income e the problems of inflation and unemployment were basically solved QUESTION 14 Fiscal policy a uses the federal...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT