04. A "sovereign debt crisis (a) Merely reduces the effectiveness of Keynesian policy (b) Drastically limits the government's ability to borrow to finance expansionary Keynesian policy and thus makes such policy unavalable (c) May make a recession worse as governments implement austerity policies to reduce the debt and shore up lenders' conidence (d) All the above (e) Only (b) and (c) are true

04. A "sovereign debt crisis (a) Merely reduces the effectiveness of Keynesian policy (b) Drastically limits the government's ability to borrow to finance expansionary Keynesian policy and thus makes such policy unavalable (c) May make a recession worse as governments implement austerity policies to reduce the debt and shore up lenders' conidence (d) All the above (e) Only (b) and (c) are true

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter32: Macroeconomic Policy Around The World

Section: Chapter Questions

Problem 27CTQ: Explain what will happen in a nation that tries to solve a structural unemployment problem using...

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Suppose the bank of Ghana purchases Ghc 180 million worth of Government of Ghana bonds to the public. ( a) With the aid of money market diagrams, explain how the money market will be affected. (b) Explain what will happen to the interest and show why the change in the interest rate will restore the money market back to equilibrium (c) Use the Keynesian Cross diagram to illustrate and explain how the goods market will be affected by this monetary policy. (d) Using your answer in part (iii) above can you conclude that the above monetary policy is contractionary? Explain.
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In the New Keynesian model, suppose that in the short run the central bank cannot observe aggregate output or the shocks that hit the economy. However, the central bank would like to come as close as possible to economic efficiency. That is, ideally the central bank would like the output gap to be zero. Suppose initially that the economy is in equilibrium with a zero-output gap. (a) Suppose that there is a shift in money demand. That is, the quantity of money demanded increases for each interest rate and level of real income. How well does the central bank perform in relative to its goal? Explain using diagrams. (b) Suppose that firms expect total factor productivity to increase in the future. Repeat part (a). (c) Suppose that total factor productivity increases in the current period. Repeat part (a). (d) Explain any differences in your results in parts (a)–(c) and explain what this implies about the wisdom of following an interest rate rule for the central bank. Problem 6 assumes that…