1. What can best be said about communications policy of the Federal Reserve over the last...

1. What can best be said about communications policy of the Federal Reserve over the last couple of decades? (a) official communications and statements from unofficial sources within the Federal Reserve System should be taken with equal authority; (b) the only official statements are those made by the Chairman in speeches and testimonies; (c) greater transparency via communications can be used as an additional tool of policy implementation; (d) Federal Reserve officials should speak only to major media outlets, like the Wall Street Journal, Bloomberg and CNBC.

2. . If growth in nominal GDP from one quarter to the next was 5.9% and prices, on average, went up by 2.0% during the same period, then real GDP likely: (a) increased by 3.9%; (b) increased by 7.9%; (c) increased by 11.8%; (d) cannot be determined with the information provided in this question.

3. . For several decades, Japan was in a “liquidity trap.” Consequently: (a) further monetary stimulus had little to no impact on GDP; (b) interest rates became stuck at very high levels; (c) fiscal stimulus that pushed the LM curve outward could not bring interest rates up: (d) there was a systemic insufficiency of liquidity in Japanese financial markets.

Expert Solution

question 1:

(C) Greater transparency via communications can be used as an additional tool of policy implementation

When the markets trust the communication from the federal reserve, the federal reserve can be more efficient in it's transmission mechanisms. That is the market both understands and believes the federal reserves communication and it appropriately reacts to the communication,hence allowing federal reserve to wield an effective policy tool.

Question 2:

Nominal GDP does not take into account the price rise. Real GDP= Nominal GDP-Price change=5.9%-2.0%=3.9%

Question 3:

(c) fiscal stimulus that pushed the LM curve outward could not bring interest rates up.

Rahul Sunny answered 2 years ago

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