The increases in oil prices in 1974 due to OPEC's actions caused the short-run aggregate supply curve to shift to the left. Canada saw increases in both unemployment and inflation as a result. The Bank of Canada could not address both increased unemployment and increased inflation because OA) contractionary monetary policy which would lower inflation would further increase unemployment. O B) expansionary monetary policy which would lower unemployment would further increase inflation. OC) Canadians at the time preferred high unemployment to high inflation. O D) Both A and B are correct answers.
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The increases in oil prices in 1974 due to OPEC's actions caused the short-run
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- 28) When the Fed raises the federal funds rate A) the value of the dollar rises on the foreign exchange market. B) consumption increases. C) net exports increase. D) the value of the dollar falls on the foreign exchange market. 29) An inflation rate targeting rule A) reduces uncertainty about monetary policy. B) means that the inflation rate must exceed 5 percent in order for the rule to be effective. C) has been adopted the by the Fed in response to the financial crisis of 2008-2009. D) will not work if the Fed continues to sue open market operations.Price stability: Suppose you are the head of the central bank and your mandateis to maintain the price level at a constant value. Explain what you would doto the money supply in response to each of the following events:(a) Real GDP increases by 4% during a boom.(b) Real GDP declines by 1% during a recession.(c) Real GDP is growing at 3% per year.(d) Te velocity of money increases by 2%.(e) Te velocity of money declines by 1%.29) An inflation rate targeting rule A) reduces uncertainty about monetary policy. means that the inflation rate must exceed 5 percent in order for the rule to be effective. nas been adopted the by the Fed in response to the financial crisis of 2008-2009. D) will not work if the Fed continues to sue open market operations. 30) "As the Fed Chases Inflation, Critics Shout, 'Faster!" "For weeks, the Fed has broadcast its intention to raise interest rates glacially." The Fed was moving slowly, according to an economist because "..the declining price of oil, economic fundamentals, including productivity and global competition, will keep inflation in check." The Fed, recognizing that the economy was improving stated it planned to "respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability." Other economists disagree with the Fed's restrained policy as a "mistake." www.nytimes, 7/1/2004 Economists estimate that if the Fed's policy was enacted in…
- Suppose that an economy has a constant nominal money supply, a constant level of real output Y = 1500, and a constant real interest rate r = 0.05, and it’s expected rate of inflation is 2%, i.e, πe = .02. Suppose that the income elasticity of money demand is ηY = 0.5 and the interest elasticity of demand ηi = –0.2. (a) Suppose that Y decreases to 1425, r remains constant at 0.05 and there is no change in the expected rate of inflation. What is the percentage change in the equilibrium price level? (b) Suppose that r increases to 0.06 and Y remains at 1500. Assuming that expected inflation remains at πe = .02, what is the percentage change in the equilibrium price level? (c) Suppose that r increases to 0.06. Assuming that πe = .02, what would real output have to be for the equilibrium price level to remain at its initial value?The U.S. Federal Reserve responded to the 2020 COVID-19 lockdowns by implementing an expansionary monetary policy, causing the M2 money supply to rise from$15.3trillion in December 2019 to$18.3 trillion in July 2020. Over the same period, real GDP fell by 5.1 percent. (a) Assuming that the velocity of money was constant over this period, what should the inflation rate be, based on the quantity equation? Show your work. (b) Why would you not expect inflation to be immediate, following the Fed’s monetary expansion?Recently the economic conditions of the country have been weakened. Even though inflation has not increasedin the last year. Price of crude oil on the international market has increased by 15% last month. As a measurein controlling inflation in the country, the Monetary Policy Committee (MPC) of the Bank of Ghana has decidedto restrict the supply of money and increase the target policy rate by 100 basis points (1%):a. As a finance student, do you support the decision made by the monetary committee? Explain b. Explain how prices of debt securities would change in response to this policy? c. Assume the Monetary Policy Committee decides to reduce the target policy rate by 1.5% today and thisdecision is not backed by any financial market expectations. Will this change in policy directive affectyields paid by firms when they issue corporate bonds? d. In the last month, the 91day treasury bill rate (risk free rate of return) has increased from 10% to 15%per annum. What are the potential…
- Suppose the Fed decided to purchase $60 billion worth of government securities on the open market. a) If the reserve ratio is 20 percent, what is the maximum potential change in the money supply? b) Why might the mond supply not grow by this much? c) What will this purchase by the Fed do to interest rates? Why? d) Under what circumstances (recession or inflation) would the Fed be pursuing such an open market policy? e) To attain those same objectives, what should the Fed do (increase or decrease) with the a. discount rate? b. reserve requirement? hp1)Identify one possible expansionary monetary policy. 2)Carefully explain in as much detail as possible, how the chosen action will impact the money market? 3)illustrated the overall impact of the chosen action on the money market In 2019, while there was a mixed approach to monetary policy-setting in the Caribbean, overall the monetary policy stance in the region remained accommodative. Jamaica, for instance, continued to pursue an expansionary monetary policy with the Bank of Jamaica cutting its overnight rates four times in 2019. The overnight rates were reduced from 1.75% in December 2018 to a historic low of 0.50% in August 2019. In contrast, the Central Bank van Suriname increased the reserve requirement for foreign currency deposits and required that at least half of commercial banks’ USD cash deposits and all of the EUR deposits be held at the Bank, in order to maintain a stable exchange rate.Further, despite the subdued economic activity, the Central Bank of Trinidad…1) Assume that velocity (how many times a dollar is used in a given period) stays the same, and that GDP does not change. If the money supply doubles, what will happen to the general price level in the economy according to the quantity equation? A) The inflation rate will double. B) The price level will fall by a half. C) The price level will double. D)The price level will not change either. 2) During the financial crises and recession of 2007-09, the Fed lowered the federal funds rate target to 0-0.25%. However, long-term interest rates, like mortgage rates, were still fairly high. One thing the Fed did to lower long-term rates was that the Fed : A) bought long-term bonds B) lowered the long-term interest rates by lowering the reverse repo rate C) lowered the long-term interest rates by lowering the discount rate D) sold long-term bonds
- 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.16. Keynes (1936) argued that, from a policy perspective, everything that can be achieved by a nominal wage cut can be more effectively achieved through an appropriate monetary policy. (a) Does this statement hold in the deficient-demand Keynesian model for a negative shock to (i) aggregate demand and (ii) aggregate labor productivity? (b) Does this statement hold in the new Keynesian model for a negative shock to (i) aggregate demand and (ii) aggregate labor productivity?(a) Differentiate between price setting behavior of firms with flexible prices and sticky price structure. (b) Discuss whether the monetary policy can capably create real effects under the following scenarios or not: 1) Wage structure in the labor market is flexible and labors have complete information about the general price level. 2) Wage structure in the labor market is flexible but labors hold imperfect information about general price level. 3) Wage structure in the labor market is rigid but labors hold complete information about general price level. 4) Monetary policy is announced on the 1st of April, while all firms are supposed to change their prices on the 15th of April. 5) Monetary policy is announced on the 1st of April, while half of the firms sets their price on 1st of April and other half on 15th of April.