flexible exchange rates. Assume the economy is initially at full employment. a) Suppose a temporary shock to the money demand pushes the economy into recession. Describe one policy intervention that takes the economy back to its pre- shock equilibrium position.
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Consider the AA-DD model with flexible exchange rates. Assume the economy is initially at full employment.
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a) Suppose a temporary shock to the money demand pushes the economy into recession. Describe one policy intervention that takes the economy back to its pre- shock equilibrium position.
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- Identify the statement as True, False, or Uncertain, and explain your reasoning: Consider a temporary positive inflation shock in a flexible exchange rate regime (with an inflation targeting central bank) and in a fixed exchange rate regime (where there is no policy intervention). Assume that both economies converge to a medium run equilibrium. Following the shock, inflation converges to its equilibrium value from above in both cases.The concept that market forces in the macroeconomy can remedy a recession is referred to as: Keynesianism: the use of expansive fiscal and monetary policies to resolve a recession. The self-correcting mechanism The consumption function The paradox of thrift3. Consider the monetary neutrality. Suppose that the central bank changed the money supply. According to economists’ assumption on monetary neutrality, could the change affect the employment in the short-run? How about in the long-run? Short-run: Long-run:
- When one currency declines against the dollar, it may correspond to lower inflation in the foreign country and as a result, historical operating income and ROI's will be higher. True or False ?Required: i) Under a fixed exchange rate, a continuous increase in domestic credit will finally cause... i. unemployment to rise ii. unemployment to fall iii. iv. V. exchange rate regime to collapse exchange rate regime to get stronger economic growthExplain on the effects of rising inflation rates on the economy. How can the rising inflation rate be controlled effectively?
- The main ideas of Keynesian economics are the importance of the long run over the short run and an equal emphasis on the AD curve and the SRAS curve. the importance of the long run over the short run, and an emphasis on a vertical SRAS curve the importance of the free market with no government intervention and an emphasis on monetary policy in the long run the importance of the short run over the long run, and an emphasis on the AD curve and a rising SRAS curveRequired: d) True or False: When the peg is credible, recession will have a smaller adverse impact on the economy.In the Mundell-Fleming model with floating, exchange rates, explain what happens to aggregate income, the exchange rate, and the trade balance when the money supply is reduced. What would happen if exchange rates were fixed rather than floating?
- When the value of a currency rises due to demand and supply factors, is it correct to say that the currency has undergone revaluation? Explain briefly.(a) Suppose that the economy of Microland is expanding rabidly. Due to this rapid expansion, the Federal Reserve Bank is pursuing a contractionary monetary policy. Draw clearly labeled graphs for each market (Money market, Goods Market and Investment) to show the effects of this policy on the equilibrium interest rate, investment and output. (b) Suppose that the economy of Macroland is expanding rabidly. Due to this rapid expansion, the Federal Government is pursuing a contractionary fiscal policy. Draw clearly labeled graphs for each market (Money market, Goods Market and Investment) to show the effects of this policy on the equilibrium interest rate, investment and output. Is there any crowding-out due to the contractionary fiscal policy?All other things being equal, which of the following would cause interest rates to rise? a. The economy slides into a recession. b. The federal government's budget deficit declines. c. The rate of inflation decreases. d. The Federal Reserve contracts the money supply.