1. A) What are the short and long run effects of the Federal Reserve steadily increasing...

A) What are the short and long run effects of the Federal Reserve steadily increasing the money supply? How do we know when it is time to stop increasing the money supply and switch to another alternative?

B) What are short and long run effects of the Federal Reserve steadily decreasing the money supply? How do we know when it is time to stop decreasing the money supply and switch to another alternative?

Solutions

Expert Solution

1) Due to increase in money supply there will be more investment spending which inturn makes the intrest rates fall thus making consumer spending more. In the short run due to this policy there will be growth in GDP but in long there will be no effect as these policy. Aggregate demand as have a increase and the nominal wages increases.The agrregrate price level and the aggregrate ouput also increases in the short run. In long run there will raise in aggregrate price level but the output will not have any change

2) In decrease in money supply there will decrease in investment spending thus raise intrest rates and inturn there will be reduction in consumer spending.

The aggregrate price level and the aggregrate output decreases in the short run.Thus the nomainal wages fall and the economic growth see a decline.

In long run there will decrease in aggregrate price level but the output will not have any change and the GDP also

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

What are short-run and the long-run effects of migration in the receiving country?

What are short-run and long-run effects of migration in the sending countries?

1. For each of the following events, explain the short-run and long-run effects on output and...

1. For each of the following events, explain the short-run and long-run effects on output and the price level, assuming policymakers take no action using a AS-AS-LRAS graph. (8 points) a. The stock market declines sharply, reducing consumers’ wealth. b. The federal government increases spending on national defense. c. A technological improvement raises productivity. d. A recession overseas causes foreigners to buy fewer U.S. goods and services. e. Using AS-AD-LRAS graph, explain the consequences of the budget deficit on output...

What are the short and long run effects of using any of the fiscal or monetary...

What are the short and long run effects of using any of the fiscal or monetary policy tools (both when we hold the LRAS constant and when we allow it to change per the policy applied)?

What is the difference in the short run and the long run? In the short run,...

What is the difference in the short run and the long run? In the short run, A. at least one of the firm's inputs is fixed, while in the long run, at least one of the firm's inputs is variable. B. at least one of the firm's inputs is fixed, while in the long run, the firm is either able to vary all its inputs, adopt new technology, or change the size of its physical plant. C. at least one...

For each of the following events, discuss the short run and the long run effects on...

For each of the following events, discuss the short run and the long run effects on output and price levels, assuming that the policymakers take no action A) The stock market decreases sharply, reduce customer's wealth B) The federal goverment increases spending on national defense C) A technogical improvement raises productivity

11. What are the short-run and long-run effects of monetary tightening on no minal interest rates?...

11. What are the short-run and long-run effects of monetary tightening on no minal interest rates? (Please justify)

When the Federal Reserve increases the federal funds interest rate, the short-run impact of the action...

When the Federal Reserve increases the federal funds interest rate, the short-run impact of the action is investment spending declines and the aggregate demand curve shifts to the left investment spending declines and the short-run aggregate supply curve shifts to the left investment spending increases and the aggregate demand curve shifts to the right investment spending increases and the short-run aggregate supply curve shifts to the right If the Federal Reserve decreases the federal funds interest rate, in the short...

Analyze the short run and long run effects of an unanticipated decrease in the money supply...

Analyze the short run and long run effects of an unanticipated decrease in the money supply in the misperceptions model. Tell me what happens to output, the actual price level and expected price level in both the short run and long run.

Explain the short run and long run effects of debts and deficits based on i) the...

Explain the short run and long run effects of debts and deficits based on i) the standard view and ii) the Ricardian view. Explain the conditions under which the latter view holds.

Subjects