The economy of Carlsberg is presently in equilibrium, but is suffering a recession as depicted in the graph below. The central bank of Carlsberg is introducing an expansionary monetary policy to get the economy back to the full-employment level of real GDP. Price index 180 160 140 120 100 80 (440, 80) 60 420 430 440 450 460 470 480 490 500 Real GDP (in billions) LAS a. What increase in aggregate demand is necessary to achieve this? billions. b. If successful, what will be the growth rate? Round your answer below to 2 decimal places. c. If successful, what will be the inflation rate? Round your answer below to 2 decimal places. 1%

The economy of Carlsberg is presently in equilibrium, but is suffering a recession as depicted in the graph below. The central bank of Carlsberg is introducing an expansionary monetary policy to get the economy back to the full-employment level of real GDP. Price index 180 160 140 120 100 80 (440, 80) 60 420 430 440 450 460 470 480 490 500 Real GDP (in billions) LAS a. What increase in aggregate demand is necessary to achieve this? billions. b. If successful, what will be the growth rate? Round your answer below to 2 decimal places. c. If successful, what will be the inflation rate? Round your answer below to 2 decimal places. 1%

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter13: Monetary Policy

Section: Chapter Questions

Problem 6E

See similar textbooks

Similar questions

What is the inflation rate? Year Money supply GDP Assume that the velocity of money is constant. (Write your answer in percentage. If your answer is 0.0222, write 2.22.) 2015 1,200 12,000 2016 1,220 12,550
The economy of Carlsberg is presently in equilibrium, but is suffering a recession as depicted in the graph below. The central bank of Carlsberg is introducing an expansionary monetary policy to get the economy back to the full-employment level of real GDP. Price index 160 140 120 100 80 80 7 2 AS AD LAS 60 370 380 390 400 410 420 Real GDP (in billions) a. What increase in aggregate demand is necessary to achieve this? EA $ billions. b. If successful, what will be the growth rate? Round your answer below to 2 decimal places. % c. If successful, what will be the inflation rate? Round your answer below to 2 decimal places. %
In early 2017, policymakers at the Federal Reserve forecast that real GDP during 2017 would increase faster than potential GDP and that the inflation rate for the year would be about 1.9 percent. Source: Federal Open Market Committee, "Advance Release of Table 1 of the Summary of Economic Projections to be Released with the FOMC Minutes," March15, 2017. Fill in the missing values in the table with estimates that are consistent with these forecasts. Assume that the growth rate for real GDP between 2016 and 2017 is 0.32 percentage points higher than the percentage change in potential output between those years (rounded to two decimal places). 2016 2017 Real GDP $16.7 trillion $nothing trillion Potential GDP $16.9 trillion $17.1 trillion GDP Deflator 111.5 nothing (Enter your responses rounded to one decimal place.)
Price level (GDP deflator, 2009 = 100) 124 122 120 LRAS 2020 $18.0 LRAS 2021 SRAS2020 SRAS2021 AD 2021 (without policy) AD2021 (with policy) AD 2020 18.4 18.5 Real GDP (trillions of 2009 dollars) a. If the Fed does not take any policy action, what will be the level of real GDP and the price level in 2021? b. If the Fed wants to keep real GDP at its potential level in 2021, should it use an expansionary policy or a contractionary policy? Should the trading desk be buying Treasury bills or selling them? c. If the Fed takes no policy action, what will be the infla- tion rate in 2021? If the Fed uses monetary policy to keep real GDP at its potential level, what will be the inflation rate in 2021?
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?
Assume the Federal Reserve triples the growth rate of the quantity of money in circulation. In the long run, this increase in money growth will affect which of the following? Check all that apply. PRICE LEVEL Suppose when unemployment is at its natural rate the economy produces a level of real GDP equal to $70 billion. 132 Using the purple points (diamond symbol) plot the economy's long-run aggregate supply (LRAS) curve on the graph. 128 124 120 The price level 116 The quantity of physical capital The level of technological knowledge 108 The inflation rate 10 20 8 50 710 80 8:0 100 LRAS M
Use the diagrams below to answer the following questions. Figure 27-5 Interest Rate Price Level 5% 4% 2% 1% 105 102 100 500 540 754 800 806 M Mo Quantity of Money (5) ADI AD Real GDP (Shillo)
Question 1 a. Increasing prices erode the purchasing power of the dollar. It is interesting to compute what goods would have cost at some point in the past after adjusting for inflation. Go to the Federal Reserve Bank of St. Louis, FRED database website at https://research.stlouisfed.org/fred2/and find the consumer price index for all urban consumers. What would a car that cost $25,000 today have cost the year 1996? b. Many countries have central banks that are responsible for their nation’s monetary policy. Go to www.bis.org/cbanks.htm and select one of the central banks (for example, ECB, Norway). Review that bank’s Web site to determine its policies regarding application of monetary policy. How does this bank’s policies compare to those of the U.S. central bank?
8. Within the classical form of the quantity theory, the demand for money is given by Md = kPY Suppose income (Y) is given at 400 units, and the money supply (M) is fixed at 200 units. Suppose k drops from its initial value of 0.5 to 0.25. What is the new price level after the change in k? Explain the process that leads to the change in the aggregate price level.
What would be the effect of an increase in money supply on aggregate demand, GDP and inflation ? Use appropriate diagram (s) to illustrate and explain your answer.
The economy of Carlsberg is presently in equilibrium, but is suffering a recession as depicted in the graph below. The central bank of Carlsberg is introducing an expansionary monetary policy to get the economy back to the full-employment level of real GDP. Price index 180 160 140 120 100 80 60 420 430 440 450 460 470 480 490 500 Real GDP (in billions) billions. AS AD LAS a. What increase in aggregate demand is necessary to achieve this? $ b. If successful, what will be the growth rate? Round your answer below to 2 decimal places. % c. If successful, what will be the inflation rate? Round your answer below to 2 decimal places. %
Suppose now that economists expect the velocity ofmoney to increase by 50% as a result of the monetarystimulus. What will be the total increase in nominalGDP?