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Consider the scenario in which the Fed is implementing a contractionary monetary policy aimed at alleviating inflationary pressures. In this regard please provide an answer to the questions listed below. In order to answer, it might be a good idea to use a money market diagram and show how interest rates affect the economy using the AD/AS diagram. No need to submit the graphs, but once again drawing the two graphs (money market and AD/AS) for yourself will go a long way in guiding you towards the right answer. Note. In the static AD/AS model, initially assume that the economy is in SR equilibrium and real GDP is above potential GDP. a) As a result of the contractionary monetary policy pursued by the Fed, what would happen with the interest rate? The interest rate is going to (rise/fall/stay fixed) Blank 1 . b) What would happen with the short run aggregate supply curve? Short run aggregate supply curve will shift (left/right/stay fixed) Blank 2 . c) What would happen with the long run aggregate supply curve? Long run aggregate supply curve will shift (left/right/stay fixed) Blank 3 . d) What would happen with the aggregate demand curve? Aggregate demand curve will shift (left/right/stay fixed) Blank 4 . e) What would happen with the Real GDP level? Real GDP will (rise/fall/stay fixed) Blank 5 . f) What would happen with the employment level? Unmployment level will (rise/fall/stay fixed) Blank 6 .
Sketch a graph which shows the lost gains from trade that result from having a monopoly.
In the News: If you bought any good or service this week, you have already participated in the market system that operates by demand and supply. What drives the demand for any product? Why are firms willing to supply it?
If the money wage rises, all else equal, economists would expect
Illustrate what might cause the world interest rate to rise.
Why might we imagine that this factor will continue to achieve the same effect in the future? iii. Indicate what factors might push in the opposite direction.
Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $135,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value..
Some companies that outsourcing call centers during the 1990s have returned these centers to north America over the past decade. who has gained and who has lost as a result of the return of the call centers to this continent? Explain.
What are two reasons why there may be a short-run trade-off between unexpected inflation and the unemployment rate. How do each of the following sources of real business cycles would effect the economy:
Show how the IS curve and the LM curve can be shifted to get an increase in output without a change in interest rates. What kind of mix of monetary and fiscal policy is needed to do this? Will a reduction in interest rates, while holding output const..
Calculate the present value (PV) of profits for Abe's business at each of the following discount rates: 8%, 9%, 10%, and 12%.
Suppose that the initial loan of $20,000 and interest rate 1.2% per month. Interest due is paid at end of each month. $10,000 of the original unpaid balance is to be repaid at the end of month two and three only. How much total interest would have be..
Alison and Carl are civil engineers who own a soil- and water-analysis business for which they have purchased computer equipment for $25,000. They do not expect the computers to have a positive salvage or trade-in value after the anticipated five-yea..
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