Monetary policy and inflation

Assignment Help Business Economics

Reference no: EM131161917

a. Assume that the monetary authority initially wants to create inflation of 1% each year, that is, have prices rise every year at this rate. Use the AS-AD graph for the monetary misperceptions model to show what this policy would look like in a long-run equilibrium when everyone anticipated the policy. Describe the behavior of the money supply, the price level, expected price level, and output in words.

b. Draw a Phillips curve consistent with a 1% inflation rate and label the long-run values for inflation and the natural rate of unemployment? What is the expected rate of inflation in the long-run equilibrium?

c. Now, assume that a new government is elected and that it believes that it can reduce unemployment at the cost of accepting a higher rate of inflation. Use AS-AD curves in the monetary misperceptions model to show how it would try to achieve this result and what the effect on money growth, inflation, and output would be in the short run (before inflationary expectations adjust) and in the long run (after inflationary expectations adjust).

d. Illustrate your result in part c using the Phillips Curve you drew in part b. Label the equilibrium point achieved before expectations adjust 1 and the equilibrium afterwards 2. Explain below any curve shift.

Reference no: EM131161917

Questions Cloud

Problem regarding the average lifetime : How fast must a pion be moving to travel 105 m (according to the laboratory frame) before it decays. The average lifetime, at rest, of a pion is 2.60 10-8 s. Give your answer in units of meters per second (m/s) and as a fraction of the speed of li..

Predict forecasts for the admissions : Predict forecasts for the admissions from the third week of April through the fourth week of May, using linear regression.

Describe the process of acceptance sampling : Describe the process of acceptance sampling. What types of sampling plans are there? What is acceptance sampling used for? Describe the concept of six-sigma quality. Why is such a high quality level important?

Calculate the equivalent resistance : (a) Calculate the equivalent resistance of the R1 and 5.00-Ω resistors connected in parallel. Ω (b) Using the result of part (a), calculate the combined resistance of the R1, 5.00-Ω and 4.00-Ω resistors. Ω

Monetary policy and inflation : Monetary policy and inflation. Assume that the monetary authority initially wants to create inflation of 1% each year, that is, have prices rise every year at this rate. Use the AS-AD graph for the monetary misperceptions model to show what this poli..

How organisations operate within their environments : Do you attribute this view as contributing to disasters such as the Brazil case or do you attribute the profit motive, a key characteristic of capitalism as having a large impact on how organisations operate within their environments?

Equilibrium output level and equilibrium interest rate plus : Utopia is described by the following equations: C=80+0.75Y I=115-10r T=20+0.2Y M=20+0.05Y G=200 X=100 Money supply=450 L=110+0.55Y-10r F= -60+2r B= F+X-M Calculate: (a) Equilibrium output level and the equilibrium interest rate plus the position on t..

What thoughts are regarding application of family therapy : In what ways can focusing on the family be a powerful method to therapeutic healing? Talk about what your thoughts are regarding the application of family therapy and Stan

Determine the pulling force f : 1. A block of mass m is pulled, via two pulleys as shown, at constant velocity along a surface inclined at angle θ. The coefficient of kinetic friction is μk, between block and surface. Determine the pulling force F. Ignore the mass of the pulleys..

User Account

All Pages