3. Suppose the monetary policy curve is given by r = 1.5 +0.75 , and the IS curve is given by Y = 13 - a) Find the expression for the aggregate demand curve. b) Calculate aggregate output when the inflation rate is at 2%, 3%, and 4%. c) Plot the aggregate demand curve and identify the three points from part (b).
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- If money supply rises, will the price level rise by the same percentage? It all depends on what happens to V and Y. The effects will tend to differ in the short run from the long run. Delete the wrong words in the following statements: (a) In the short run, V can change substantially / is unlikely to change much at all when money supply changes. (b) In the short run, a rise in MV (i.e. a rise in aggregate demand) will lead to a rise in the price level / may or may not lead to a rise in the price level depending on the degree of slack in the economy.E. 2. 4)During a 2008 interview, then German Finance Minister Peer Steinbrueck said, "We have to watch out that in Europe and beyond, nothing like a combination of downward economic [growth] and high inflation rates emerges-something that experts call stagflation." Such a situation can be depicted by the movement of the short-run aggregate supply curve from its original position, SRAS,, to its new position, SRAS2, with the new equilibrium point E2 in the accompanying figure. In this question, we try to understand why stagflation is particularly hard to fix using fiscal policy. Aggregate price level LRAS SRAS2 SRAS, AD1 Real GDP Recessionary gap a. What would be the appropriate fiscal policy response to this situation if the primary concern of the govern- ment was to maintain economic growth? Illustrate the effect of the policy on the equilibrium point and the aggregate price level using the diagram. b. What would be the appropriate fiscal policy response to this situation if the…Suppose the Australian money supply (M) grows at 4% in 2021, real GDP (Y) grows at 2%, the real interest rate (r) is -1%, and the money demand function is as follows. (M/P)d = 0.7Y Based on the above information, answer the following questions. (a) Calculate the nominal interest rate (i), assuming the quantity theory of money holds. (b) Suppose the Reserve Bank of Australia (RBA) announces it will tighten its monetary policy in 2022, resulting in the Australian public expecting inflation to change to 1%. Assuming the nominal interest rate is unchanged at the 2021 level, what is the ex-ante real interest rate in 2022? (c) Assume the Fisher effect holds, and the real interest rate remains constant at the 2021 level. If expected inflation for 2023 is 2%, what will the nominal exchange rate be in 2023? Motivate your answer.
- Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that the minimum wage increases to $15 in the United States, which affects the entire labor market and increases the cost of production. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose the Federal Reserve wants to keep prices in the economy as low as possible. Should the Fed intervene? If so, show the impact of successful monetary policy on your graph. Label this new equilibrium point "3."Suppose a country has a money demand function (M/P)ª = kY, where k is a constant parameter. The money supply grows by 12 percent per year, and real income grows by 4 percent per year. a. What is the average inflation rate? b. How would inflation be different if real income growth were higher? Explain. c. How do you interpret the parameter k? What is its relationship to the velocity of money? d. Suppose, instead of a constant money demand function, the velocity of money in this economy was growing steadily because of financial innovation. How would that affect the inflation rate? Explain.Suppose that the short-run aggregate supply curve is: π= 2 + 1.5 (Y-10), where it is inflation and Y is output; and the aggregate demand curve is: Y= 11 -0.5. Find the equilibrium output and the equilibrium inflation rate.
- Now, suppose the economy is back in long-run equilibrium, and then the price of imported oil rises. 1. On the following graph, shift a curve or adjust the point to reflect the short-run effect of the increase in the price of oil. (Please use the image attached) 2. True or False: If the Fed undertakes expansionary monetary policy, it can return the economy to its original inflation rate but the unemployment rate will be higher.Hello, I need help with a macroeconomics question. Thank you in advance! The answers are based on a short exerpt from the Federal Reserves press release from Feb 1, 2023 (attatchde below). 7. What do you expect to happen to the money supply? 8. What do you expect to happen to the inflation rate? 9. How would you expect all these decisions to affect employment in the economy? 10. How do the effects you found on 8 and 9 align with what the Fed was hoping to attain?The country of Freeland has an aggregate demand curve determined by the equation M + U = 6% Freeland also has a potential growth rate of 2%. Using this information, draw Freeland's aggregate demand (AD) and long-run aggregate supply (LRAS) curves on the graph. Inflation rate (%) 12 11 10 9 8 7 6 5 4 3 2 1 0 -2 -1 0 LRAS 1 2 3 3 4 5 6 Real GDP growth rate (%) prevailing inflation rate: What is the prevailing inflation rate in Freeland? AD What is the prevailing real GDP growth rate? prevailing real GDP growth rate: 7 8 9 10 % %
- b. Suppose a country has a money demand function (M/P)d= kỲ, where k is a constant parameter. The money supply grows by 12 percent per year, and real income grows by 4 percent per year. What is the average inflation rate?a) Consider an AD-AS model with Static Expectations. Show how changes in monetary policy generate short-run movements in output. (b) Consider an AD-AS model with Rational Expectations. Show how changes in the unanticipated component of monetary policy generate short-run movements in output. (c) Explain how overlapping wage contracts generate persistence in output when there are monetary policy shocks.(a) Suppose that, in a liquidity trap, bank reserves are less liquid than government debt. If the central bank conducts an open market sale of government debt, what will be the effect on the price level? Use a diagram, explain your results. (b) Suppose that there is a decrease in the price of housing, which the central bank judges is a temporary asset price decrease. In the New Keynesian model, determine the central bank's optimal response to this asset price increase, using diagrams. (c) Suppose initially that inflation is at the central bank's target and the output gap is zero. Then, government spending goes up. Determine, with the aid of diagrams, how the degree of price stickiness affects the central bank's optimal response and explain your results.